Gold Drops as Federal Reserve Remains Hawkish

Last week, the price of gold dropped slightly as the Federal Reserve pushed on with its hawkish stance on rate hikes. Demand concerns also affected palladium negatively, with the metal dropping to its lowest figure since 2019. At the same time, U.S. gold futures rose 1% to reach $1,851.80 while spot gold remained unchanged at $1,852.94 an ounce.

Recently released consumer data also shows that America’s CPI increased by 6.4% in the 12 months through January. On a monthly basis, CPI rose by 0.5% in January.

The increase in gold last week came  week after the greenback dropped to a near two-week low. However, the dollar recovered shortly after, which made the precious metal more expensive for buyers overseas. Against the yen, the greenback was up by 0.5% at 130.24 yen. Against the euro, the dollar was 0.2% higher.

High Ridge Futures’ director of Metals Trading, David Meger, stated that there is still concern that the Federal Reserve could become more aggressive with its rate hikes in an effort to fight inflation in the country. This, Meger noted, would weigh on gold.

President of the Dallas Federal Reserve Lorie Logan and Tom Barkin, president of the Richmond Fed, both agreed that the Central Bank would need to concentrate on reducing inflation down to the 2% target.

Insured unemployment rate, weekly jobless claims and private sector payrolls are some of the high-frequency inflation indicators considered by the Fed.

Oil prices are said to be the primary driver of U.S. inflation, affecting more than 70% of the total inflation. Diesel’s retail price has been the sole most significant predictor of inflation in the country. Other inflation predictors have been the OECD GDP growth tracker and the Johnson Redbook index.

The Federal Reserve is expected to increase its policy rate at least two more times, going as high as 5 to 5.25%. Bullion is sensitive to increasing rates of interest in the United States, which in turn increases the opportunity cost of holding the asset. Palladium also slipped by more than 4% to reach $1,500.18 an ounce. This was shortly after touching $1,468.94 per ounce, its lowest price since August 2019.

In a note, analysts at Commerzbank stated that the growing use of platinum as a substitute for palladium and the increase in the demand for electric vehicles would reduce the demand for palladium for the production of new cars. Platinum dropped 2.3% to reach $931.61 while spot silver declined by 0.6% to hit $21.84.

One can bet that gold extractors such as Royal Gold Inc. (NASDAQ: RGLD) will be keeping a close eye on how the Fed’s actions affect the markets.

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