Gold prices climb toward highest finish in a week

Further clarity on the Federal Reserve’s “plans to taper asset purchases and ultimately raise benchmark interest rates” will be the main factor that determines if gold moves going forward, said Tyler Richey, co-editor of Sevens Report Research.

“If the Fed stays accommodative and allows inflation to run a little over target, gold can rally,” he said in a daily report. “But if they are seen as becoming too tight, then we are likely headed for new YTD lows.”

“It is important to point out that rising rates are generally a negative influence on gold,” said Richey. “However, if inflation rates are rising at or above the pace of the rise in rates, gold could still rally,” he said, adding that price action in the dollar would become a more important factor for precious metals in that
scenario.

On Wednesday, August gold GCQ21, +0.62% GC00, +0.62% was up $15.10, or nearly 0.9%, at $1,792.50 an ounce, after touching an high of $1,793.60. A settlement around this level would be the highest for a most-active contract since June 16, FactSet data show.

July silver SIN21, +1.27% SI00, +1.27% also rose 39 cents, or 1.5% to $26.25 an ounce, following a nearly 0.7% fall Tuesday.

Yields for the 2-year Treasury yield TMUBMUSD02Y, 0.249% fell on Tuesday to mark the largest one-day drop since March 17, while a gauge of the U.S. dollar, the ICE U.S. Dollar Index DXY, -0.07%, was down nearly 0.3% in Wednesday dealings, offering support for dollar-denominated gold prices.

Fawad Razaqzada, market analyst at ThinkMarkets, is wagering that gold may see some upside against that backdrop.

“Gold and silver have been consolidating for the past couple of days after retreating sharply last week in response to a hawkish Fed. However, with the dollar resuming lower and stocks higher, and US yields having gone back inside prior ranges, precious metals could be due a rally,” the analyst wrote.

Fed Chairman Jerome Powell on Tuesday testified before a House committee, repeating that the central bank expects rising inflationary pressures to prove transitory. The central bank chief also reiterated that policy makers would be patient in raising benchmark interest rates higher from their current range between 0% and 0.25%.

“Indeed, concerns have eased a little that faster inflation would trigger policy tightening,” Razaqzada said. “Jerome Powell said the Fed would be patient in waiting to lift interest rates, and once again reiterated inflationary pressures will likely wane,” he said.

Gold prices moved even higher, immediately following data that showed IHS Markit U.S. flash manufacturing PMI rose to 62.6 in June from 62.1. IHS Markit U.S. flash services PMI, meanwhile, fell to 64.8 in June from 70.4.

Data from the government Wednesday also showed the U.S. current-account deficit rose by $20.7 billion to $195.7 billion in the first three months of this year.

Meanwhile, July copper HGN21, +2.13% climbed by 2.3% to $4.33 a pound.

July platinum PLN21, +1.04% climbed by 2% to $1,091.70 an ounce and September palladium PAU21, +1.98% added 2.2% to $2,615.50 an ounce.