Gold remained under pressure on Friday, falling to its lowest level of 2023 after the January PCE report showed a stronger-than-expected increase in prices, a sign that the Federal Reserve may have to continue its aggressive rate hike and monetary tightening to combat inflation.
Gold futures were on track for a five-day losing streak after ending the previous session at its lowest since Dec. 30.
Price action
-
Gold for April delivery
GC00,
-0.42%
GCJ23,
-0.42%
fell $10.20, or 0.6%, to $1,816.50 an ounce on Comex, on track for a 1.4% weekly decline.
-
March silver
SIH23,
-1.84%
fell 2.1% to $20.85 an ounce.
-
April platinum
PLJ23,
-3.32%
was down 3.4% at $913.60 an ounce, while March palladium
PAH23,
-4.38%
declined 3.8% to $1,374 an ounce.
-
March copper
HGH23,
-2.34%
was down 2.4% to $3.963 a pound.
Market drivers
The U.S. Department of Commerce said its core personal-consumption expenditures price index (PCE) jumped 0.6% in January, and was up 4.7% from a year ago. Including the volatile food and energy components, headline inflation increased 0.6% and 5.4%, respectively.
That was the biggest increase since last summer, a sign that stubbornly high inflation is likely to take awhile to return to low prepandemic levels.
See: Inflation jumps in early 2023, PCE shows, and stays stubbornly high
Meanwhile, consumer spending rose 1.8% in January to mark the biggest increase in almost two years, but the surge was powered by unusually strong auto sales and is unlikely to last. Analysts polled by The Wall Street Journal had forecast a 1.4% advance. It was the first increase in three months in consumer spending.
Treasury yields and the U.S. dollar have risen since the beginning of February as market participants have boosted expectations for Fed interest-rate increases.
The dollar index
DXY,
+0.54%,
a gauge of the dollar’s strength against a basket of six influential currencies, rose 0.7%, to 105.29 on Friday morning, on pace to book its best week since September, 2022, and its longest winning streak in over four months, according to Dow Jones Market Data.
Rising yields raise the opportunity cost of holding nonyielding assets like gold, while a stronger dollar makes commodities priced in the unit more expensive to users of other currencies.
“The evolving new narrative of more robust U.S. growth, payrolls, retail sales, and the additional Fed response required to tame the rude health of the U.S. economy sees investors catching up to the Fed ‘higher for longer,’ which has hurt gold,” Stephen Innes, managing partner of SPI Asset Management, told MarketWatch in an email.
Read: The real impact of Russia’s invasion of Ukraine on commodities
Innes sees potential for a shift toward cooler economic data in favor of gold when February releases on U.S. consumption, labor and inflation come in a few weeks, “but we need that recession angst back to nudge forward market-based rate-cut expectations,” he said.
—Myra Saefong contributed to this article.
