Marketupdate | 24/06/2023

Gold falls to a fresh 10-week low after Jerome Powell’s hawkish address to Congress

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Today’s Observations

Gold fell to a 10-week low of $1911 in Asia on Friday as the United States Dollar (USD) strengthened. However, it recovered to post an ante meridiem (AM) benchmark of $1919.35 in London due to physical and probable Central Bank buying. The price then spiked to a high for the day of $1937 after the release of weaker than expected Global Purchasing Managers’ Index (PMI) data.

Nevertheless, the yellow metal gave up most of its gains to end a volatile session with a pared 0.31% advance at $1920 on the day. It was down 1.94% on the week that was dominated by Jerome Powell’s hawkish testimony to Congress.

Silver also fluctuated, recovering from a 3-month low of $22.14 posted on Friday, to end with a 0.49% gain at $22.37. Yet it fell 7.52% over the week as the ’fast money’ exited the industrial precious metal.

Platinum Group Metals (PGM’s) experienced pressure from reports of significant growth in electric cars, which threaten the need for petrol and diesel-driven automobiles. Platinum ended a quiet session with a modest 0.54% gain on the day at $929 but was down 5.78% on the week. Palladium ended unchanged on Friday at $1276 but was down 9.44% for the week.

Market Commentary

Gold prices on Friday were heading for their biggest weekly percentage fall in over four months, weighed by a stronger dollar and hawkish comments by Federal Reserve officials. Spot gold rose 0.3% to $1,919.99 per ounce as of 2:19 p.m. Eastern Daylight Time (EDT), corresponding to 1819 Greenwich Mean Time (GMT), after adding as much as 1.2% due to a retreat in United States bond yields.

United States gold futures settled 0.3% higher at $1,929.6. The dollar index rose 0.5% to a one-week peak against its rivals, making gold less attractive for holders of other currencies. The dollar strengthened after Federal Reserve Chair Jerome Powell, in his congressional testimony this week, signaled more interest rate hikes ahead but vowed the central bank would proceed with caution.

“Powell was pretty hawkish. He favors more interest rate hikes and doesn’t see any rate cuts anytime soon. That is pretty bearish on the metals,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

San Francisco Federal Reserve Bank President Mary Daly said on Friday in an interview with Reuters that two more rate hikes this year is a “very reasonable” projection. Higher United States interest rates increase the opportunity cost of holding gold.

Bullion has fallen nearly 2% so far this week and has lost more than $150 since scaling above the key $2,000 level in early May. “Investor appetite lacks conviction in gold,” Standard Chartered analyst Suki Cooper said in a note. “The sharp drop in exposure since the last Federal Reserve meeting does not necessarily suggest imminent short-covering activity, but it does underscore a shift in sentiment as we head into a seasonally slower period for demand.”

Spot silver rose 0.5% to $22.34 per ounce but was set for its biggest weekly drop since October 2022. Platinum was down 0.6% at $917.34, on course for its worst week since August 2022. Palladium steadied at $1,283.18 after hitting its lowest point since May 2019 on Thursday. Palladium could extend this year’s near-30% price decline as demand is threatened by the rapid development and use of electric vehicles.

Economic Analysis

The S&P Global United States Composite Purchasing Managers’ Index (PMI) dropped to 53.0 in June 2023, down from 54.3 in the previous month, as a preliminary estimate showed. The latest reading signalled the slowest upturn in private sector output since March as factory production fell at the steepest rate since January and service sector activity expansion cooled from May’s 13-month high.

New order growth eased but was the second-fastest in just over a year, while the pace of job creation sank to the slowest since January. On the price front, input cost inflation picked up to a robust pace, while selling prices rose at the slowest pace since October 2020.

The S&P Global United States Manufacturing Purchasing Managers’ Index (PMI) fell to 46.3 in June 2023, pointing to the biggest contraction in the manufacturing sector since December, compared to 48.4 in May and forecasts of 48.5, preliminary estimates showed. New orders fell the most since December, with weak demand linked to muted customer confidence while foreign demand was also subdued.

Also, input buying fell at the steepest rate since January, and both pre- and post-production inventories declined sharply. On the price front, cost pressures continued to dwindle, as suppliers sought to boost their sales and offer reduced prices. Input prices fell the most since May 2020 and selling price inflation was the slowest in the current sequence of inflation.

Meanwhile, greater success in finding suitable candidates allowed firms to expand their workforce numbers. Finally, the degree of optimism was the weakest in 2023 so far, amid customer hesitancy and inflationary concerns. Source: Markit Economics

Gold Chart ($/oz)

Silver Chart ($/oz)

Platinum Chart ($/oz)

Palladium Chart ($/oz)

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