Gold price slips, finds little traction in Fed’s inflation view

February 1, 2018

London (Feb 1)  Gold futures slipped Thursday, finding little traction from a mostly weaker dollar even after the Federal Reserve said it expects inflation “to move up this year” in a sign it’s likely to hike rates at its next meeting in March.

Read: Fed takes step toward rate hike as baton set to pass to Powell

Analysts said the March hike is likely widely priced in to trading.

April gold futures GCJ8, -0.08% now the most active, traded at $1,340.70 an ounce, down $2.40, or 0.2%. February gold GCG8, -0.01%  for the month and year to date had climbed roughly 2.3%.

March silver SIH8, -0.35% slipped 5 cents, or 0.3%, to $17.19 an ounce. The exchange-traded SPDR Gold Shares GLD, +0.67% was actually firmer premarket, while the silver-focused iShares Silver Trust SLV, +0.37% was 0.7% higher.

The dollar struggled to shake off its recent weakness with the ICE index trading close to a three-year low. The ICE U.S. Dollar Index DXY, -0.08%  fell 0.1% to 89.045, adding to a small loss from Wednesday when the benchmark logged its biggest one-month loss since March 2016. Dollar-priced gold often moves inversely to the buck.

“The relatively indecisive price action in the USD, at least initially, may reflect the fact that many investors already anticipated a slightly more hawkish bias by the [Fed] committee, given the economy’s solid performance. Markets have fully priced in a March rate increase,” said Marios Hadjikyriacos, investment analyst at XM, part of Trading Point Holdings.

Rising Fed rates, and subsequently, rising yields, can also be seen as a negative for gold, in part because the commodity offers no yield and because rising yields can contribute to a stronger dollar.

U.S. yields continued higher on Thursday, with the rate on the 10-year benchmark note TMUBMUSD10Y, +1.49%   rising 4 basis points to 2.75%, the highest since April 2014. UBS lifted its forecast for U.S. 10-year yields to reach 2.9% by the end of 2018, up from a previous prediction of 2.7%. For 2019, UBS raised the forecast to 3% from 2.85% previously.

On the data front, weekly jobless claims, productivity data and unit labor costs are all out at 8:30 a.m. Eastern Time, followed by the manufacturing PMI at 9:45 a.m. The ISM manufacturing index and construction spending data are due at 10 a.m.

In other metals action, March copper HGH8, -0.19%  slipped less than 0.1% to $3.193 a pound and April platinum PLJ9, +0.00%  was little changed from its Wednesday settlement at $1,004.30 an ounce. Palladium’s March contract PAH8, -0.22%  was down 0.4% at $1,019.30 an ounce, headed for a sixth losing session in a row.


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