By Joy Wiltermuth and William Watts
Gold futures scored a fourth straight daily gain Tuesday, as U.S. economic data pointed to economic headwinds being produced by high inflation.
Gold for June delivery (NYM:GC00) rose $17.60, or 1%, to settle at $1,865.40 an ounce. July silver surged 1.6%, to close at $22.06 an ounce, with both metals scoring their highest settlement values since May 6, according to Dow Jones Market Data.
“The US economy is not falling apart, but the weakness it is experiencing is much worse than many expected,” said Edward Moya, senior market analyst at Oanda.
A pair of surveys released Tuesday —the S&P flash U.S. services index and flash U.S. manufacturing index—showed that U.S. businesses in May expanded at the slowest pace in several months, reflecting the effects of high inflation, continuing supply shortages and some softening in customer demand.
New homes sales in April also fell for the fourth straight month, plunging to the lowest levels since the pandemic, on surging prices and soaring mortgage rates.
“There might be no stopping gold right now as the wall of worry on Wall Street continues to grow,” Moya said in written commentary Tuesday. ” Gold should remain supported as inflationary pressures weigh further, China’s COVID situation remains a big unknown, and corporate America continues to slash outlooks.”
Gold, which bounced after hitting a three-month low in early May, has benefited as the 10-year Treasury yield (XTUP:BX:TMUBMUSD10Y) pulled back from a 3 1/2-year high above 3.2% in recent weeks, as a selloff in equities spurred demand for safe-haven assets.
The dollar, as measured by the ICE U.S. Dollar Index (IFUS:DXY) , meanwhile, has retreated from a roughly 20-year high.
Gold “is benefiting from the drop in Treasury yields together with some dollar weakness—with which it has an inverted price correlation. The stabilization of Treasury yields and the dollar, which have retreated from peaks reached in mid-May, occurs as the markets appear to have priced-in the Fed’s hawkish tilt, and the appearance of some rays of hope for a brighter global economic outlook,” said Ricardo Evangelista, senior analyst at ActivTrades, in a note.
Investors will be keeping an eye on Wednesday’s release of minutes from the Federal Reserve’s two-day gathering in May, to help gauge whether Fed Chairman Jerome Powell’s “more temperate postmeeting tone reflects a narrow or broad consensus of Committee members,” said economists at Mizuho Securities in a Tuesday client note.
At issue is whether there is a willingness to reassess policy once the fed-funds rate gets to 2%, as a potential counterweight to those aggressively pushing for 3% to 3.5% rate by year-end, they said.
In other metals trading, July copper fell 0.9% to close at $4.31 a pound.
July platinum shed 0.8% to finish at $942.90 an ounce, while June palladium rose 1.4% to end at $1,986.60 an ounce.