Gold futures turned sharply higher Wednesday, setting prices back on track to post fresh six-year highs, as the U.S. dollar weakened and traders weighed expectations for a U.S. interest-rate cut.
Federal Reserve Jerome Powell reiterated in a speech in Paris Tuesday that the economic outlook hasn’t improved since the last Federal Open Market Committee meeting in June, setting the stage for an interest-rate cut.
The next imported U.S. economic data point, however, is the Beige Book report from the Federal Reserve due out Wednesday afternoon, said Jim Wyckoff, senior analyst at Kitco.com. The report offers the Fed’s periodic examination of the economy. It’s expected to “lean dovish on U.S. monetary policy, given recent comments from Fed officials,” including Powell, said Wyckoff.
August gold trading on Comex GCQ19, +0.86% rose $11.90, or 0.8%, at $1,423.10 an ounce, after closing 0.2% lower Tuesday. Prices for the most-active contract were on track to post their highest finish since May 2013, FactSet data show.
Gold had “fallen overnight to test that key $1,400 level and bounced from that,” said Brien Lundin, editor of Gold Newsletter. “I believe that was an important confirmation that got technical traders to jump in.”
A recent round of stronger-than-expected U.S. economic data had dented expectations for more aggressive interest rate cuts in coming months by the Fed, commodity analysts said. The expectation for lower rates can provide a lift to the precious yellow metal because it doesn’t offer a yield.
U.S. retail sales on Tuesday climbed a better-than-expected 0.4% for June. “Certainly, the bear camp in gold was emboldened by a chain reaction of bearish forces [Tuesday] with U.S. retail sales deflating economic uncertainty, temporarily reducing rate cut prospects and lastly, providing the dollar with fuel for a noted extension of a recent recovery on its charts,” said analysts at Zaner Metals.
On Wednesday, however, data showed that construction of new homes slipped by 0.9% to an annual pace of 1.25 million last month.
Market expectations for Fed interest rate cuts remain relatively high. Fed-funds futures markets are showing a 65% probability of a 25-basis-point cut to rates, which currently stand between 2.25%-2.50%, and a 32% chance of a half-point cut to rates, according to CME Group data.
The U.S. dollar DXY, -0.17% was down 0.2%, at 97.235, while the 10-year Treasury note TMUBMUSD10Y, -1.29% fell to yield 2.0775%.
“The prospect of a U.S. interest rate cut and several other central banks remaining dovish is still depressing the value of paper money and providing support to gold,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
But Sino-American trade friction may provide support for gold bulls, after President Donald Trump on Tuesday raised fresh doubts about a near-term resolution between Beijing and Washington on their protracted tariff spat, which has disrupted global supply chains.
“Gold is still in a bullish trend and could see its upward momentum return on disappointing earnings results and lack of progress on the trade front,” wrote Edward Moya, senior market analyst at Oanda.
Separately, September silver SIU19, +1.61% was trading up 25.2 cents, or 1.6%, at $15.93 an ounce, after closing 2% higher on Tuesday. Prices were poised to log their highest finish since Feb. 20, FactSet data show.
“Silver had a delayed reaction to the prospect of central bank stimulus and appears to be playing catch up,” said Cieszynski. “Another way of looking at it is that investors taking profits in gold may be spreading their capital out to other precious metals with Silver currently the main beneficiary.”
“Silver now starting to rally confirms the recent gains in gold and suggests that renewed interest in precious metals could last for some time, and is likely not a quick pop that could just as quickly be reversed as we had seen in recent years,” he told MarketWatch.
Among other metals, September copper HGU19, +0.00% traded flat at $2.70 a pound. October platinum PLV19, +0.57% added $4.80, or 0.6%, to $851.70 an ounce and September palladium PAU19, +1.48% rose $22.50, or 1.5%, to $1,538.80 an ounce, after Tuesday’s 3% decline.