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Metals Stocks: Gold prices end at a 2-week high ahead of Fed decision

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Gold futures climbed on Tuesday to settle at a two-week high, finding support ahead of the outcome of a two-day Federal Reserve meeting that’s expected to see policy makers reiterate their current policy stance.

“Overall, sentiment for gold is mixed as the economy continues to recover and inflation remains relatively muted,” said Jason Teed, co-portfolio manager of the Gold Bullion Strategy Fund
QGLDX,
+0.42%
.

Prices for the precious metal also rose in the wake of data released Tuesday that revealed that sales are U.S. retailers in February fell 3% due to a lapse in government aid and unusually bad weather. Industrial production also fell last month by 2.2% versus Wall Street expectations for a gain of 0.5%.

“Gold is caught between multiple conflicting data points regarding inflation — retail sales down 3% last month when 0.2% increase was anticipated, employment numbers from last week,” along with interest rates and U.S. dollar levels, Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch.

Gold for April delivery
GC00,
-0.05%

GCJ21,
-0.05%

tacked on $1.70, or 0.1%, to settle at $1,730.90 an ounce on Comex. That was the highest most-active contract finish since March 2, FactSet data show.

May silver
SIK21,
-1.36%
,
meanwhile, fell 29 cents, or 1.1%, at about $26 ounce.

The Fed will conclude its two-day meeting on Wednesday, with a statement on monetary policy.

Read: Powell to be ‘nonchalant’ in the face of rising bond yields

“We expect a ‘goldilocks’ speech” from Federal Reserve Chairman Jerome Powell, “treading a cautious path with economic growth expectations being not too hot and not too cold,” said Ross Norman, chief executive officer at Metals Daily.

“The key issue, especially for gold, will be their expectations on interest rate increases,” he told MarketWatch, noting that 10-year treasury yields are up 60 basis points since their meeting in December, and they imply an increase in late 2022 — well ahead of their stated forecast of late 2023.

If the Fed “reiterates the slower path [on rate increases], then this might be to gold’s advantage,” Norman said. “A quickening pace on the other hand could see yields jump and gold correspondingly lower.” 

Meanwhile, Wright said he doesn’t foresee any surprises from the Fed regarding policy, but that markets “could see acknowledgment regarding inflation and lack of urgency as inflationary data has perked up in past two months.” Wright thinks gold will rise, but at the same time won’t attract the same level of interest from people with the advent of bitcoin reaching record highs.

Gold remains down more than 8% for the year to date, having felt pressure from a rising U.S. dollar and a bond-market selloff that’s pushed the yield on the 10-year Treasury note
TMUBMUSD10Y,
1.614%

higher for six straight weeks. Higher yields raise the opportunity cost of holding non-yielding assets like gold.

If the Fed decides to use its asset purchases to suppress recent increases in Treasury yields, that “could prove to be relatively bullish for the metal,” said Teed.

“The Fed’s overall dovish stance would usually be a tailwind for gold,” he said. However, “sentiment in the economy may overpower the Fed’s typical effects.”

Among other metals traded on Comex, palladium was a standout, with the most-active June contract
PAM21,
+4.01%

up 5% at $2,491.90 an ounce, the highest most-active contract finish since January.

Mining company Norilsk Nickel
NILSY,
-4.44%

plans to completely restore production at two of its mines within three to four months, following a halt in operations due to flooding in February, Russian News Agency TASS reported Tuesday.

Palladium supply was already tight, however, so prices for the commodity moved higher, said Wright.  

R. Michael Jones, chief executive officer of Platinum Group Metals Ltd.
PLG,
-6.62%
,
said “emission standards are tough and getting tougher” and “real demand is growing,” for palladium, which is used in gasoline-fueled vehicles.

Rounding out action in the metals, May copper
HGK21,
-2.26%

fell by 1.7% to $4.07 a pound, while April platinum
PLJ21,
+0.40%

settled at $1,219.10 an ounce, up 0.8%.

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