Market Update | 30/06/2023

Gold witnessed a decline, going below $1900, but managed to end marginally higher, appearing technically promising.

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Today’s Observations

On Thursday, gold saw a decrease from $1912 to $1903 in the early Asian trading. However, this trend was reversed in Europe, resulting in a volatile session in New York. This was ahead of a series of key United States economic reports, with the most notable one being the latest Gross Domestic Product (GDP) data. The United States’ growth in the first quarter came in stronger than expected. This, combined with a sharp decline in weekly jobless claims, emphasized the strength of the United States economy and put pressure on the Federal Reserve to resume its rate hike program in July.

This scenario ignited a rally in the United States dollar and United States Treasury yields. Correspondingly, gold experienced a decline, with the price falling below the pivotal $1900 level to touch a 14-week low of $1894. However, this period of weakness was short-lived as strong buying emerged, pushing the precious metal back into plus territory for the day. It ended marginally higher at $1908 and has remained close to this level so far this morning.

Today, all attention will remain on the United States economy with Personal Consumption Expenditures (PCE) inflation data being the key focus. We can expect another volatile day with a potential trading range of $1895 to $1925. Silver concluded with a pared 0.57% loss at $22.57. Meanwhile, the Platinum Group Metals (PGMs) had a difficult day with platinum falling 1.75% to $899, marking its lowest close since October of the previous year, and palladium declined 2.79% to $1221.

Market Commentary

On June 30, 2023 (Reuters) – Gold struggled for momentum in early Asian trading on Friday. Traders were waiting for key United States inflation numbers which were due later in the day. This came after a series of strong data prints and hawkish comments from Federal Reserve officials, which increased bets of more rate hikes. Spot gold was flat at $1,908.33 by 0122 Greenwich Mean Time (GMT). It hit its lowest since mid-March at $1,892.82 on Thursday. United States gold futures fell 0.1% to $1,916.40.

The dollar index was steady near a two-week high hit in the previous session, making gold expensive for holders of other currencies. United States data on Thursday showed a resilient labour market, while the gross domestic product for the first quarter was revised upward, making a strong case for the Federal Reserve to raise rates to control inflation. While Federal Reserve Chair Jerome Powell indicated that the central bank was likely to raise rates at least twice more by year-end, Atlanta Federal Reserve Bank President Raphael Bostic said it was clear that inflation had fallen. Investors now see an 89% chance of a 25-basis point hike in July, according to Chicago Mercantile Exchange’s (CME’s) Fedwatch tool. High-interest rates discourage investment in non-yielding gold.

Benchmark Treasury yields surged on Thursday. A rise in treasury yields makes gold less attractive by increasing the opportunity cost of holding it. Market participants are waiting for Personal Consumption Expenditures (PCE) data for May, with core PCE expected to be 4.7% on a year-on-year basis, well above the Federal Reserve’s 2% target. Spot silver rose 0.1% to $22.56, platinum was up 0.7% at $900.52, and palladium rose 7% to $1,237.31.

Economic Analysis

The United States economy experienced a growth of an annualized 2% on a quarter in the first quarter of 2023, which is well above 1.3% in the second estimate, and forecasts of 1.4%. Consumer spending growth accelerated more than expected to 4.2%, which was the strongest in nearly two years (versus 3.8% in the second estimate) despite stubbornly high inflation. Spending on durable goods surged 16.3% and services rose 3.2%. Exports were up by 7.8% and imports increased at a slower pace of 2%, leading to a higher contribution from net trade of 0.58 percentage points.

On the other hand, non-residential fixed investment growth was smaller than initially expected (0.6% versus 1.4%) and government spending was revised lower (5% versus 5.2%). The main drags to the GDP growth came from private inventory investment (-2.14 percentage points, in line with the second estimate) and residential fixed investment (-4% versus – 5.4%). Last quarter, the United States economy grew by 2.6%. The Federal Reserve predicts growth to reach 1% this year. Source: U.S. Bureau of Economic Analysis.

Gold Chart ($/oz)

Silver Chart ($/oz)

Platinum Chart ($/oz)

Palladium Chart ($/oz)

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