Gold futures suffered a steep loss on Friday, giving up most of the previous session’s gains as a recovery in the U.S. Dollar dampened demand for the dollar-denominated asset. On Thursday, the market surged to its highest level since July 15, spurred by U.S. Federal Reserve Chair Jerome Powell’s reassurance that a rate hike was not on the table for the time being.
On Friday, December Comex gold settled at $1817.20, down $18.60 or -1.01%.
Besides the rebound in the greenback, gold was pressured by a report showing core inflation rose at a slightly slower-than-expected pace in June. Nonetheless, gold still posted a weekly gain. A flat-to-slightly higher Treasury market had little influence on the precious metal.
Fed’s Policy Statement, Chairman Powell’s Comments Drive Gold Higher
Despite the loss on Friday, gold remained underpinned by the Federal Reserve’s decision to leave interest rates at historical lows and to not adjust the pace at which it buys government bonds each month.
While prices held steady at the release of the Fed’s monetary policy statement, Fed Chair Powell triggered a late session reversal last Wednesday and a follow-through rally on Thursday after he said the U.S. economy is still a good deal away from making “substantial further progress” toward the Fed’s dual mandates of stable prices and maximum employment.
“I’d say we have some ground to cover on the labor market side,” Powell said Wednesday. “I think we’re some way away from having had substantial further progress toward the maximum employment goal.”
Treasury Yields Fall After Softer-Than-Expected Inflation Data, but Dollar Rises
U.S. Treasury yields fell Friday after a key inflation reading came in near economists’ expectations, indicating inflationary pressures may be ebbing. However, the U.S. Dollar rose along with other safe-haven currencies as stocks fell and as upbeat U.S. economic data helped reverse some of the losses from earlier this week when dovish remarks by the Fed tanked a month-long rally in the greenback.
Services Buoy U.S. Consumer Spending; Inflation Pushes Higher, but at Slower Pace
U.S. consumer spending surged in June as vaccinations against COVID-19 boosted demand for travel-related services, but part of the increase reflected higher prices, with annual inflation accelerating further above the Federal Reserve’s 2% target, Reuters reported.
Though personal income barely rose last month, other data on Friday showed wage growth in the second quarter was the fastest in 13 years on an annual basis. That, together with rising household wealth and ample savings should keep consumer spending strong, though rising COVID-19 infections pose a risk.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rebounded 1.0% last month after dipping 0.1% in May, the Commerce Department said. Economists polled by Reuters had forecast consumer spending rising 0.7%, Reuters reported.
The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.4% in June after advancing 0.5% in May. The so-called core PCE price index was lifted by increases in prices of airline tickets, used cars as well as hotel and motel accommodation.
In the 12 months through June, the core PCE price index shot up 3.5%, the largest gain since December 1991, after rising 3.4% in May. The core PCE price index is the Federal Reserve’s preferred inflation measure for its flexible 2% target.
With the Federal Reserve not scheduled to meet until September 21-22, traders aren’t going to have a lot to react to over the next seven weeks, other than economic data and Fed member comments. Therefore, we expect to see similar price action that we saw on Thursday and Friday, a volatile, two-sided trade.