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Gold shines brighter as US producer prices fall

 

Thursday, June 15, 2023

Today’s headlines

What’s happening: Gold prices settled higher on Wednesday, following the release of data on US wholesale prices.

What happened: Weakness in the US dollar lent support to the yellow metal during Wednesday’s session.

The US Federal Reserve announced plans to keep interest rates unchanged after the close of gold futures trading.

Why it matters: Data released on Wednesday showed annual wholesale prices in the US rising by just 1.1% year-over-year in May, easing from 2.3% in the previous month, according to the Labor Department. The latest reading was the lowest since December 2020.

Producer prices for final demand in the US fell 0.3% month-over-month in May, versus a 0.2% rise in April, and versus expectations of a 0.1% decline.

The producer price index, following US consumer price data released on Tuesday, showed the annual inflation rate easing to 4% in May, from the previous month’s 4.9%. May’s figure was the lowest since March 2021.

The Fed released its interest rate decision shortly after the settlement of gold futures. The US central bank held its rates at a range of 5% to 5.25%. There are growing speculations of the Fed hiking rates again at its July meeting.

The European Central Bank is expected to increase its key interest rates further by 25bps today, while the Bank of Japan is projected to maintain its ultra-loose monetary policy.

China’s central bank unexpectedly reduced its seven-day reverse repurchase rate, while both the Reserve Bank of Australia and Bank of Canada unexpectedly increased interest rates.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.4% to 102.95 on Wednesday. This supported gold trading, as weakness in the greenback generally makes metals cheaper for overseas buyers.

Gold prices for August delivery gained $10.30, or 0.5%, to close at $1,968.90 per ounce, while silver for July added 29 cents to reach $24.11 per ounce on Wednesday.

Palladium for September delivery gained $43.60 to $1,402.20 per ounce, while July platinum fell $1.90 to $980.00 per ounce and Copper for July delivery climbed 4 cents to $3.87 per pound.

What to watch: Traders will continue monitoring comments from central bank officials as their interest rate decision typically moves gold prices. Markets will also keep an eye on the greenback, which might provide some direction to the safe-haven metal.

The release of weekly jobless claims data from the US will also remain in focus today. The number of people filing for jobless benefits, which rose to 261,000 in the week ended June 3, is expected to have increased by 275,000 in the latest week.

The markets today

The Canadian dollar will be in focus today ahead of a couple of major economic reports

Context: The CAD/USD forex pair fell on Wednesday after recording strong gains earlier in the session.

Details: The CAD/USD forex pair rose to its highest level in seven months in early trading on Wednesday, triggered by the discrepancy between the central bank monetary policies of the two countries.

The Bank of Canada surprised markets by increasing its key interest rate by 25bps at its latest policy meeting. There are growing speculations of the BoC continuing to hike interest rates ahead.

Meanwhile, the US Federal Reserve kept rates unchanged at its Wednesday meeting, marking the first pause in its monetary policy tightening cycle that started in March 2022. However, comments from Fed officials signalled two more rate hikes of 25bps each this year.

Prices for crude oil, one of Canada’s major exports, moved lower, exerting pressure on the loonie. WTI crude oil futures fell $1.15 to settle at $68.27 per barrel.

The CAD/USD forex pair settled almost flat at $1.3327 on Wednesday. The S&P/TSX Composite Index rose 0.12% to close at 20,015.09, recording gains for the third straight session.

What are expectations: Traders await the release of data on housing starts and manufacturing sales from Canada today. Housing starts in Canada rose by 22% to 261,600 units in April and are expected to come in at 219,000 in May. Analysts expect manufacturing sales in the country to fall 0.2% in April, following a 0.7% rise in March.

Other Markets: US trading indices closed mixed on Wednesday, with the S&P 500 and Nasdaq 100 up by 0.08% and 0.70%, respectively, and the Dow Jones index down by 0.68%.

The news shaping the markets

The US has alleged “unprofessional behavior” by Russia sending F-22 Raptors to the Middle East. The RUB/USD forex pair remained broadly flat after the news.


The People’s Bank of China lowered its one-year medium-term lending facility rate by 10 basis points to 2.65%, exerting pressure on the CNY/USD forex pair.


Australia’s consumer inflation expectations rose to 5.2% in June, from 5.0% in the previous month, which sent the AUD/USD pair lower in forex trading this morning.


Hong Kong Monetary Authority maintained its base rate at 5.5% at its latest meeting, lending support to the HKD/USD forex pair.


New Zealand’s economy grew by 2.2% year-over-year in the first quarter, versus a 2.3% expansion in the prior period. The figure coming in below market expectations of 2.6% sent the NZD/USD pair lower in forex trading this morning.

What else to watch today

Saudi Arabia’s inflation rate, wholesale price inflation and interest rate decision, France’s consumer price inflation, Spain’s balance of trade, Turkey’s central government budget balance, Eurozone’s balance of trade and European Central Bank’s interest rate decision, India’s balance of trade and money supply M3, South Africa’s building plans passed, US retail sales, import prices, export prices, NY Empire State manufacturing index, continuing jobless claims, Philly Fed business conditions index, industrial production, manufacturing production, capacity utilization rate, business inventories, natural gas stocks change, net long-term TIC flows, net treasury international capital flows and net purchases of US treasury bonds and notes, Russia’s gross domestic product, Indonesia’s total car sales, as well as Brazil’s federal tax revenues.


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