Metals Stocks: Gold prices end at a more than 1-month low as investors brace for Fed decision

July silver 
SIN22,
-1.74%
fell 23.5 cents, or 1.1%, to $21.02 an ounce, after sinking 3.1% to $21.255 an ounce on Monday, the lowest finish since May 13.

A swath of assets swooned on Monday following last week’s U.S. consumer price data that saw inflation reach a 40-year high of 8.6% year-over-year in May, disappointing those hoping for signs inflation had peaked. The two-day Federal Reserve meeting that ends Wednesday is expected to result in another sharp rise in benchmark interest rates as officials battle to get inflation under control, but may also risk a recession.

A rate hike of 50 basis points is expected, though some analysts have said the central bank could make a bigger increase.

U.S. dollar strength
DXY,
+0.19%
pared somewhat after Monday’s surge. Dollar-denominated gold prices tend to pressure the metal, while rising rising Treasury yields can dull the luster of gold, which offers no yield. The yield on the 10-year Treasury yields
TMUBMUSD10Y,
3.390%
eased back Tuesday, but remained sharply higher month to date as expectations were rising for a 75 basis point hike by the Fed.

The ICE U.S. Dollar Index DXY, -0.04%, a measure of the currency against a basket of six major rivals, was up 0.2%, trading near a 20-year high.

Gold futures continued to trade lower after data on Tuesday revealed that U.S. wholesale prices jumped 0.8% in May.

“Another piping hot reading has increased the pressure on the Fed,” said Naeem Aslam, chief market analyst at AvaTrade, in note. “Traders must brace for a more hawkish monetary policy and odds are as high as they can be for an interest rate hike of 75 basis” at Wednesday’s meeting.

Meanwhile, gold is now reflecting a loss of just over 1% for the year, owing to recent selloffs. The metal had maintained a small gain, thanks to support from purchases by gold exchange-traded funds (ETFs), with net inflows of 8 million ounces since the start of January, taking holdings to 118 million ounces, said a team of Berenberg analysts led by Oliver Grewcock, in a note.

That demand has countered slowing demand from Asian physical markets such as China, owing to “zero-COVID-19 policies” and India. “These markets are more price sensitive and seasonal with Indian demand typically peaking in Q4 around the wedding season and festival of Diwali, and Chinese demand peaking in December/January ahead of the Lunar New Year,” he said.

Gold will need those ETF inflows to keep coming in to offset weaker physical demand the analyst said.

“Within this context, the decision on rates by the Federal Open Market Committee (FOMC) on Wednesday is therefore key for the metal as an above-50bp hike would make a nonyielding asset, such as gold, less attractive, especially if accompanied by hawkish commentary,” he said.

“Despite this, we believe that on a relative basis, gold remains attractive in a negative real rate environment with elevated security risks,” they said.

Rounding out action on Comex, July copper
HGN22,
-0.66%
lost 0.6% to $4.185 a pound. July platinum
PLN22,
-1.32%
fell 1% to $923.40 an ounce and September palladium
PAU22,
+0.17%
traded at $1,793.50 an ounce, up 0.9%.