Gold Drops and Stocks Gain Amid Positive Economic News
Last week, gold and silver saw weekly losses while the odds of a first quarter Fed rate cut diminished. This week markets were largely driven by U.S. economic data, and subsequent Fed policy speculation.
Monday started with news that leading U.S. economic indicators declined in December, for the 21st consecutive month. The index last sustained longer declines during the recessions of 1973-1975 and 2007-2009. Gold and silver steadied at $2,030 and $22.81 following the news, but momentum for the pair was limited by dollar gains.
Precious metals saw little change on Tuesday, while the schedule of economic events was void of anything significant. Meanwhile on Wall Street, the S&P 500 posted its second consecutive record closing price. At the same time, the benchmark 10-year Treasury yield jumped to 4.188% for the first time in over a month, as investors anticipated U.S. economic data set for release on Wednesday and Thursday.
On Wednesday, investors were greeted with positive data via the S&P flash U.S. services PMI, which jumped to a 7-month high of 52.9, and the flash U.S. manufacturing PMI, which touched a 15-month peak of 50.3. For many, this data was indicative of healthy economic growth and increased odds of a “soft landing” for the U.S. economy.
Following the economic news, Treasury yields, stocks, and the dollar all surged, while gold was pressured to the downside. As a result, gold fell by 0.8% Wednesday, to a closing price of $2,012.
On Thursday preliminary Q4 GDP data was released, which showed that the U.S. economy grew at a 3.3% annual pace, when 2.0% growth had been forecasted by economists. U.S. jobless claims data was released on the same day, which showed that claims rose by 25,000 last week, to 214,000. This exceeded expectations of 200,000 and marked the highest jobless claims number in a month.
Gold pared some of its weekly losses on Thursday as Treasury yields slipped, and focus shifted to Friday’s inflation news, which would undoubtedly influence the Fed’s upcoming policy meeting next week. By Thursday’s close, gold was hovering near $2,012, while silver saw little change at $22.76. Meanwhile, stocks jumped again and the S&P 500 achieved a record close for its fourth consecutive session.
Inflation data was released this morning, via the Commerce Department’s personal consumption expenditures index (PCE), which is the Fed’s favored inflation gauge. Data revealed that the PCE index rose by 0.2% in December, and 2.9% on a yearly basis, when respective increases of 0.2% and 3.0% were forecasted.
The positive inflation data coupled with the latest string of upbeat economic data, seemingly increased the odds of a rate cut. As of today, the CME Fedwatch tool gave about a 50% chance of a rate cut in March, while the central bank is widely expected to keep rates unchanged at the next policy meeting on January 31st.
Despite the positive inflation news, gold remained in a narrow range this morning, and is just 0.3% lower for the week, at $2,017. Meanwhile, silver is eying a modest 0.8% weekly uptick at $22.76. Despite a mixed Friday, major stock market averages are on track for weekly gains. Most notably, the S&P 500 is 0.86% higher for the week, while the Dow Jones Industrial Average and Nasdaq Composite are eying 0.52% and 0.51% respective weekly gains.