(Kitco Commentary) - Gold prices softened Thursday following yesterday's remarkable $110 gain, as traders prepared for the upcoming three-day holiday weekend. Market participants who had been actively trading gold futures sought to square their positions by taking profits and closing out long positions ahead of the extended break.
The most active June gold futures contract settled at $3,341.70, down a moderate $16 (0.47%) from yesterday's record high of $3,357.70. Traders showed a clear reluctance to maintain positions in both equities and gold, preferring to secure profits on gold trades and reduce risk exposure on equity positions that could potentially continue their downward trend next week.
Fractional gains in the U.S. dollar had minimal impact on gold pricing today, with the dollar index reaching 99.40. Notably, the index remains below a critical technical support level that was breached yesterday when it declined 0.88%, moving from an opening price of 100.074 before settling at 99.249.
Silver prices also retreated, with the most active May contract falling $0.435 (1.33%) to $32.54. Despite this pullback, the semi-precious metal, which finds significant use in industrial applications, has posted respectable gains over the past nine trading days. Since April 7, when it opened at $29.23, silver has appreciated just over 10% in value. However, silver has clearly underperformed compared to gold, resulting in the gold-silver ratio increasing from 99.24 on April 7 to its current level of 102.151—a ratio not seen since mid-May 2020.
Contributing to the decline in both precious metals was cautious optimism surrounding current trade talks between the United States and Japan. This optimism was tempered, however, by Federal Reserve Chairman Jerome Powell's statements indicating the U.S. central bank would exercise caution regarding interest rate cuts.
In his speech to the Economic Club of Chicago, Powell referenced the Windy City's fictional icon, saying, "As that great Chicagoan Ferris Bueller once noted, 'Life moves pretty fast,'" adding that "For the time being, we are well positioned to wait for greater clarity" on the impact of policy changes in areas including immigration, taxation, regulation, and tariffs.
During his prepared remarks, the Chairman emphasized that Trump's tariff policies are "significantly larger than anticipated," noting, "The same is likely to be true of the economic effects, which will include higher inflation and slower growth."
Powell also cautioned that inflation resulting from tariffs will likely be temporary but "could also be more persistent." These statements decreased the probability of an interest rate cut at the May FOMC meeting from 14.7% yesterday to 13.2% today, according to the CME's FedWatch tool.
Following gold's significant price gains, the current contraction is not only expected but arguably healthy for the market. However, Chairman Powell's statements certainly elevate uncertainty regarding the administration's tariff policies and their effects on inflation and economic growth. Consequently, a less accommodative Federal Reserve could negatively impact gold prices over the coming weeks.
For those who want additional information on our premium service, Click Here,
Wishing you, as always good trading,
