Gold prices traded higher Wednesday after data showed U.S. wholesale prices eased in May, providing another sign that inflation pressures are abating in the face of the Federal Reserve’s monetary tightening campaign.
Investors also looked ahead to the central bank’s interest-rate decision on Wednesday, which comes shortly after the gold futures settlement on Comex, and Chair Jerome Powell’s press conference slated for Wednesday afternoon.
Price Action
- Gold prices for August delivery GC00, +0.61% GCQ23, +0.61% rose $ 12.50, or 0.6%, to $ 1,971.10 per ounce on Comex.
- Silver for July delivery SI00, +1.36% SIN23, +1.36% gained 32.3 cents, or 1.4%, to $ 24.145 per ounce.
- Palladium for September delivery PAU23, +2.94% advanced $ 41.90, or 3.1%, to $ 1,400.50 per ounce, while July platinum PLN23, -0.37% fell $ 2.40, or 0.2%, to $ 979.50 per ounce.
- Copper for July delivery HGN23, +0.99% was up 3.1 cents, or 0.8%, to $ 3.8615 per pound.
What’s happening
Data released Wednesday morning showed U.S. annual wholesale prices increased by only 1.1% for the 12 months ended in May from 2.3% in the prior month, the Labor Department reported Wednesday. That’s the lowest reading since December 2020.
For the month, U.S. wholesale prices fell 0.3% in May — the third drop in the past four months. Economists polled by the Wall Street Journal had forecast a 0.1% decline in the producer price index. Stripping out volatile food and energy prices, the data showed that core inflation was flat last month and in line with expectations.
The PPI data followed a reading on consumer prices released Tuesday, which showed that the yearly rate of inflation slowed to 4% from 4.9%, marking the lowest level since March 2021.
Analysts have said that the slowdown in inflation supports the potential for the Federal Reserve to “skip” an increase in interest rates this month.
The Fed is scheduled to announce its latest interest-rate decision about a half hour after Comex gold futures settle for the session. Market participants see a 92% probability that the Fed will leave its policy rate unchanged at a range of 5% to 5.25%, according to CME FedWatch Tool.
An interest-rate pause has already been “fully factored in” by the traders, said Chintan Karnani, director of research at Insignia Consultants, so the “July interest-rate outlook is the key now.”
The world is “nearing an interest-rate cut with the passing of each month, unless there is another big spike in inflation,” he said. The U.S. dollar index may have “formed a medium term top.” That would be supportive for dollar-denominated gold prices.
In Wednesday dealings, the ICE U.S. Dollar index DXY, -0.62% fell 0.6% to 102.74.
However, the inflation data don’t mean the Fed can’t resume interest rate increases in July if needed. The market-implied likelihood of the central bank delivering a hike in July has remained above 50% since last week.
“While Powell may side with the doves, getting the hawks to accept a ‘hold’ and not dissent may require ‘hawkish’ concessions, including leaving the window open to another hike in July and dispelling the prospect of a rate cut in 2023,” said Thierry Wizman, global FX and interest rates strategist at Macquarie.
“The statement will reflect that, of course, by maintaining the current bias in the language (‘In determining the extent to which additional policy firming may be appropriate…’). The dots may also reflect some hawkishness,” he wrote in emailed commentary Wednesday.