Gold futures ended with a slight loss on Thursday, a day after posting the best one-day advance since December and highest settlement in two months.
“Gold is finally finding its footing, largely due to the inflationary environment we find ourselves in, combined with the recent weakness in the U.S. dollar,” said Adam Koos, president at Libertas Wealth Management Group. “While rising Treasury yields will surely continue to put a ceiling above price, that doesn’t change the fact that there is a clear and distinct increase in relative strength not seen since the late-spring 2021 price spike.”
The big question now is whether gold can “hold and launch new heights,” he told MarketWatch. “I think so — especially if the U.S. can’t figure out how to unravel the supply chain kink created by the fallout from COVID-19.”
On Thursday, February gold GCG22, -0.10% GC00, -0.10% fell 60 cents, or less than 0.1%, to settle at $ 1,842.60 an ounce, following a 1.7% rise a day ago. Wednesday’s rise brought the most-active contract to the highest finish since Nov. 19 on the back of the strongest daily advance of this year so far, according to FactSet data.
Meanwhile, silver for March delivery SIH22, +1.83% held on to most of its gains Thursday to tack on 48 cents, or 2%, to settle at $ 24.716 an ounce, which marked the highest value since Nov. 19. That followed a nearly 3.2% gain on Wednesday.
“Inflation fears are heightened, and prompting traders and investors to respond accordingly,” Jim Wyckoff, senior analyst at Kitco.com, told MarketWatch. “One of those responses is to buy hard assets as an inflation hedge, including gold and silver.”
The recent move up in gold came amid some weakness in the dollar and a pullback in Treasury yields, which have been rising and raising the opportunity cost of owning nonyielding gold over government debt which bears a coupon. On Thursday, a pop in the dollar and a rebound in equities likely contributed to the modest decline for safe-haven gold.
The 10-year Treasury yield TMUBMUSD10Y, 1.839% was up modestly at around 1.837% on Thursday, while the ICE U.S. Dollar Index DXY, +0.18% was trading up 0.2%.
“Bullion blasted above the $ 1,830 region yesterday to hit a two-month high, capitalizing on the faintest of pullbacks in real yields and the dollar,” wrote Marios Hadjikyriacos, senior investment analyst at brokerage XM, in a daily note.
“This screams of a market that wants to go higher, as gold took almost no damage while yields soared this week but traded like a rocket the moment they retreated,” he said.
The rate-setting Federal Open Market Committee next gathers on Jan. 25-26 and is expected to set the stage for a series of interest-rate increases, which strategists argue could ultimately weigh heavily on the longer-term outlook for bullion.
U.S. economic reports Thursday had no big impact on metals, said Kitco’s Wyckoff.
Applications for U.S. unemployment benefits surged by 55,000 last week to 286,000 and hit a three-month high. Separately, the Philadelphia Federal Reserve’s index of manufacturing conditions rose by 8 points in January to 23.2, showing businesses are still growing despite the omicron outbreak.
In other Comex dealings, March copper HGH22, +2.29% tacked on 2.5% to $ 4.583 a pound. April platinum PLJ22, +2.11% climbed by 2.2% to $ 1,050.80 an ounce and March palladium PAH22, +3.32% settled at $ 2,073.70 an ounce, up nearly 3.3%, lifting the week-to-date rise to roughly 10%.
“Palladium’s huge jump in price this week is encouraging, not only for those long the commodity itself,” said Libertas’ Koos. “It also offers evidence that perhaps the global auto market supply chain bottleneck is starting to ease. Is it possible we could see ‘deflation’ in automobiles this year? I think palladium is saying ‘yes’.”
Meanwhile, platinum “seems to be enjoying a metaphorical bounce on the trampoline, along with gold and silver, and it’s likely due to its classification as a metal, if for no other reason,” said Koos. “Global supply for platinum is expected to grow as mining and production increases throughout the year (along with waning COVID fears), so in order for the metal to enjoy sustained upside, we’re going to have to see a commensurate surge in demand to go along with the increased supply.”