Fed’s Beige Book report says economy is expanding at same ‘modest’ pace as last survey
Gold futures finished sharply higher Wednesday, sending prices to a fresh six-year high, as the U.S. dollar weakened and traders weighed expectations for a U.S. interest-rate cut.
Prices climbed further in electronic trading Wednesday afternoon, following the release of the Federal Reserve’s Beige Book—the central bank’s periodic examination of the U.S. economy. The report said the economy is expanding at roughly same “modest” pace as indicated in the last survey.
The report followed news Tuesday that Fed Chariman Jerome Powell reiterated in a speech in Paris that the economic outlook hasn’t improved since the last Federal Open Market Committee meeting in June, setting the stage for an interest-rate cut.
Ahead of the Beige Book release, August gold trading on Comex GCQ19, -0.14% rose $12.10, or 0.9%, to settle at $1,423.30 an ounce, after closing 0.2% lower Tuesday. Prices for the most-active contract posted their highest finish since May 14, 2013, FactSet data show. In electronic trading shortly after the Beige Book, the contract traded at $1,427.
Gold had “fallen overnight to test that key $1,400 level and bounced from that,” said Brien Lundin, editor of Gold Newsletter, referring to the gains in the regular trading session. “I believe that was an important confirmation that got technical traders to jump in.”
A recent round of stronger-than-expected U.S. economic data had earlier dented expectations for more aggressive interest rate cuts in coming months by the Fed, commodity analysts said. The expectation for lower rates can provide a lift to the precious yellow metal because it doesn’t offer a yield.
U.S. retail sales on Tuesday climbed a better-than-expected 0.4% for June. “Certainly, the bear camp in gold was emboldened by a chain reaction of bearish forces [Tuesday] with U.S. retail sales deflating economic uncertainty, temporarily reducing rate cut prospects and lastly, providing the dollar with fuel for a noted extension of a recent recovery on its charts,” said analysts at Zaner Metals.
On Wednesday, however, data showed that construction of new homes slipped by 0.9% to an annual pace of 1.25 million last month.
Market expectations for Fed interest rate cuts remain relatively high. Fed-funds futures markets are showing a 67% probability of a 25-basis-point cut to rates, which currently stand between 2.25%-2.50%, and a 32% chance of a half-point cut to rates, according to CME Group data.
The U.S. dollar DXY, -0.12% was down 0.2%, at 97.209, while the 10-year Treasury note TMUBMUSD10Y, -0.21% fell to yield 2.0593%.
“The prospect of a U.S. interest rate cut and several other central banks remaining dovish is still depressing the value of paper money and providing support to gold,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
But Sino-American trade friction may provide support for gold bulls, after President Donald Trump on Tuesday raised fresh doubts about a near-term resolution between Beijing and Washington on their protracted tariff spat, which has disrupted global supply chains.
“Gold is still in a bullish trend and could see its upward momentum return on disappointing earnings results and lack of progress on the trade front,” wrote Edward Moya, senior market analyst at Oanda.
Separately, September silver SIU19, +0.53% added 29.3 cents, or 1.9%, at $15.971 an ounce, after closing 2% higher on Tuesday. Prices logged their highest finish since Feb. 20, FactSet data show.
“Silver had a delayed reaction to the prospect of central bank stimulus and appears to be playing catch up,” said Cieszynski. “Another way of looking at it is that investors taking profits in gold may be spreading their capital out to other precious metals with Silver currently the main beneficiary.”
“Silver now starting to rally confirms the recent gains in gold and suggests that renewed interest in precious metals could last for some time, and is likely not a quick pop that could just as quickly be reversed as we had seen in recent years,” he told MarketWatch.
Among other metals, September copper HGU19, -0.50% finished 1.6 cents, or 0.6%, higher at $2.716 a pound. October platinum PLV19, +0.71% added 20 cents, or 0.02%, to $847.10 an ounce and September palladium PAU19, -0.10% rose $26.90, or 1.8%, to $1,543.20 an ounce, after Tuesday’s 3% decline.