Gold hits 2-month low as Fed rates seen higher for longer

Gold prices slipped to their lowest in about two months on Thursday, after a drop in U.S. weekly jobless claims numbers favored the Federal Reserve’s stance that interest rates would have to go higher to control inflation.

Spot gold was down 0.1% at $1,822.5 per ounce by 4:16 p.m. ET, having touched their lowest level since Dec. 30 earlier. U.S. gold futures fell 0.8% to settle at $1,826.8.

The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, pointing to a tight labor market and inflationary pressures.

Meanwhile, the country’s gross domestic product increased at a revised 2.7% annualized rate in 2022’s fourth-quarter, revised down from 2.9% reported last month.

While GDP numbers missed expectations by a bit, the lowered drop in jobless claims keeps the Fed in the driver’s seat such that they can keep raising rates, said Bob Haberkorn, senior market strategist at RJO Futures.

Minutes from the Fed’s Jan. 31-Feb. 1 meeting on Wednesday showed policymakers agreed rates would need to move higher, but that the shift to smaller hikes would let them calibrate more closely with incoming data.

“The only way to combat inflation is to raise rates and the only way it’s going to go away is when the consumer taps out, but the consumer hasn’t tapped out yet… they’re still buying,” Haberkron highlighted.

Fed fund futures now price in three more hikes to 5.25-5.50% scaling back expectations for future rate cuts.

High interest rates dampen gold’s appeal as an inflation hedge while raising the opportunity cost of holding the non-yielding asset.

Elsewhere, spot silver fell 0.8% to $21.3233 per ounce, platinum was 0.2% lower at $947.153 and palladium sank 2.4% to $1,446.54.

UBS expects auto-catalyst palladium’s prices to fall to $1,400 per ounce by end-December on a combination of slower economic growth and on substitution with platinum.