Gold futures finished higher Monday, recouping a portion of their losses from the end of last week, as a drop in the ISM services index reading helped ease expectations for a June Federal Reserve rate hike.
Gold for August delivery
rose $4.70, or 0.2%, to settle at $1,974.30 an ounce on Comex.
lost 11 cents, or 0.5%, to $23.64 an ounce.
added $32.90, or 3.3% to $1,036.40 an ounce, while September palladium
shed $6.80, or 0.5%, to $1,410.30 an ounce.
edged up by 1.1% to $3.77 a pound.
Gold prices had started the session lower but moved up following data showing most U.S. businesses grew at a slower pace in May, with the ISM services index falling to a five-month low of 50.3%, from 51.9% in April.
With Federal Reserve officials now in their pre-policy decision blackout for speaking in public, “financial markets are left to focus on data alone, and today’s ISM survey reads very badly,” said Adrian Ash, director of research at BullionVault.
Gold continues to “mirror both the dollar and expectations for Fed interest rates very closely, so the U.S. services sector data has seen the precious metal reverse Friday’s jobs data slump as betting that the Fed will raise rates in 2 weeks’ time has evaporated,” said Ash. The CME’s FedWatch tool shows the market is pricing in the odds of a Fed interest-rate hike at 22.9%.
The U.S. dollar steadied following the data, with the ICE U.S. Dollar Index
a measure of the currency against a basket of six major rivals, little changed at 104.02 in Monday dealings. Changes in the value of the dollar versus other currencies can make dollar-denominated gold more or less expensive to users of other currencies.
Gold ended lower on Friday after a much stronger-than-expected surge in May nonfarm payrolls provided support for the dollar.
“The gold story is fairy uncomplicated at the moment,” Stephen Innes, managing partner at SPI Asset Management, told MarketWatch on Monday.
“The U.S. economy continues to surprise to the upside, hence gold loses recession luster,” while the Fed has “seemingly boxed themselves into a pause in June,” he said.
“The dynamics from here get a bit more interesting as, beyond the next few meetings, the rate cuts could be hard to dislodge given investors have very strong recession priors,” said Innes.
He believes that means the market pricing in expectations for a rate cut will “simply be deferred rather than materially reduced,” and that could “keep gold alive and the dollar from going on a bigger bull run, all things being equal.”
Still, a key question is whether the Fed will pause in June or continue to raise interest rates. If there is an increase in June, it would probably be 25 basis points, Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch.
He said the central bank “will have to maintain a hawkish stance and language even if no rate increase occurs in June.” Given that, he doesn’t see gold going much higher in the short term and sees a “consolidation period under way.”