Marketupdate | 22/06/2023

Gold falls to a fresh three-month low on Jerome Powell’s hawkish testimony to Congress

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Today’s Observations

Gold’s performance was quite subdued in Asia on Wednesday, it clung tightly between an early high for the day of $1939 and $1936. However, the scene changed in Europe where the price slumped to $1932 ahead of the New York opening. Market spectators were waiting with bated breath for Jerome Powell’s semi- annual address to Congress, seen as the key risk event of the day.

It was no great surprise when the Federal Reserve Chairman struck a hawkish tone with a warning of more rate hikes ahead. This triggered a sharp sell off to a fresh three-month low of $1920 on good volume. However, this latest dip found willing buyers (Central Banks again?) with the price recovering to $1937 before ending with a marginal 0.15% loss at $1933.

The yellow metal has traded narrowly between $1935 and $1932 so far this morning. The United States economy and the Federal Reserve’s interest rate policy will remain in focus today with day two of Jerome Powell’s testimony to Congress and we can expect another volatile session with a potential trading range of $1925 to $1950.

Silver added another 2.16% to the previous day’s 3.34% decline to end at $22.66 but should find good technical and physical support at current levels; platinum ended on the lows and down 1.76 % at $947, palladium fell 2.54% to $1344.

Market Commentary

On June 22, 2023 (Reuters) – Gold prices were little-changed on Thursday due to renewed talks of interest rate hikes this year by the U.S. Federal Reserve, keeping the bullion pinned near a three-month low hit in the previous session. Spot gold was flat at $1,932.35 per ounce by 0242 GMT. U.S. gold futures ticked down 0.1% to $1,942.70.

Federal Reserve’s Powell in his remarks to lawmakers on Capitol Hill mentioned that further rate increases are “a pretty good guess” of where the U.S. central bank is heading if the economy continues in its current direction. While higher interest rates dull the appeal for zero-yield bullion, Edward Meir, a metals analyst at Marex said “the market still believes the central bank is “very close to finishing their rate hikes,” and that’s why gold hasn’t really done all that much.

Gold could trade between $1,900 to $1,980 until the next Federal Reserve decision, Meir added. Markets are pricing in a 72% chance of a 25-basis point hike next month, according to CME FedWatch tool. Atlanta Federal Reserve President Raphael Bostic, meanwhile, became the first policymaker to suggest the Federal Reserve would need to wait at least past its July meeting to decide on further rate increases. The dollar index held close to Wednesday’s lows. A weaker dollar usually makes bullion more appealing for overseas investors.

Traders now await weekly U.S. initial jobless claims data at 1230 GMT, an important indicator of the U.S. economy, and the Bank of England’s rate decision after inflation data came in higher than expected again, with investors split on just how big the new hike will be. Spot silver was little changed at $22.6293 per ounce, after hitting its lowest since March 22 in the previous session. Platinum added 0.4% to $944.96, and palladium inched up 0.1% to $1,348.81.

Economic Analysis

Nearly all Federal Open Market Committee participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year, Federal Reserve Chair Powell reinforced in prepared remarks for the Semi-annual Monetary Policy Report to Congress. The Federal Reserve will continue to make decisions meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks, Powell added.

“Earlier in the process, speed was very important,” but “It is not very important now.” At the same time, inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go and will take time for the full effects of monetary restraint to be realized. The Federal Reserve left the target for the funds rate unchanged at 5%-5.25% in June but signaled rates may go to 5.6% by year-end if the economy and inflation do not slow down more. Source: Federal Reserve.

Gold Chart ($/oz)

Silver Chart ($/oz)

Platinum Chart ($/oz)

Palladium Chart ($/oz)

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