Gold prices began the week on an upward trajectory, bolstered by dovish remarks from a prominent figure within the US Federal Reserve.
Christopher Waller, a Fed Governor, reiterated his stance that the central bank should initiate interest rate cuts as early as July.
He advocated for significant reductions of 125-150 basis points, aiming to bring the key interest rate to a “neutral” level of approximately 3%.
Waller’s reasoning hinges on the latest inflation data, which, despite existing US tariffs, has remained moderate.
Gold may rise
While Waller’s comments are unlikely to sway the Fed’s immediate decision on interest rates next week – a move that would have been signalled by other Federal Open Market Committee (FOMC) members, including Fed Chair Jay Powell – they significantly enhance Waller’s prospects of succeeding Powell as Fed Chair next year, according to Commerzbank AG.
His dovish outlook is expected to be well-received by US President Donald Trump.
“Waller’s view that one could look through tariff-related price increases suggests that he would also be willing not to react to a rise in inflation for the time being,” said Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG.
Gold would become significantly more attractive as a result of the depressed real interest rate. If other potential candidates for the Fed chair position share this view, the recent record high of around USD 3,500 per troy ounce is likely to approach quickly.
A scenario where real interest rates remain low or even negative would make non-yielding assets like gold more appealing to investors seeking a hedge against inflation and a store of value.
At the time of writing, the gold price on COMEX was at $3,443.22 an ounce, mostly unchanged from the previous close.
Platinum’s quandary: supply adjustments
The platinum market, in contrast to gold, is currently navigating a landscape of contradictory signals.
The largest palladium producer from Russia recently revised down its production forecast for both palladium and platinum for the current year.
Palladium production is now anticipated to be in the range of 2.68-2.73 million ounces, a slight decrease from the previous 2.7-2.76 million ounces, according to Commerzbank.
Similarly, platinum production is expected to be marginally lower at 645-662 thousand ounces, down from the earlier 662-675 thousand ounces.
These adjustments imply a potential slight supply deficit for the palladium market, with the deficit for platinum projected to be somewhat larger.
This revised outlook stands in contrast to the company’s early July market forecast, which had predicted a balanced palladium market and a 200,000-ounce supply deficit for platinum.
“This provides only limited arguments for further price increases for platinum and palladium,” stated Carsten Fritsch, commodity analyst at Commerzbank AG.
ETF outflows
Adding to the bearish sentiment, the platinum ETFs tracked by Bloomberg have experienced substantial outflows.
Over 160,000 ounces have exited these ETFs since the middle of last week, bringing the total net outflows since the beginning of the month to nearly 250,000 ounces.
Fritsch noted:
ETF investors apparently see the significantly higher price level as a selling opportunity.
These significant outflows suggest a less tight market than previously perceived, further challenging the price appreciation of platinum.
The World Platinum Investment Council (WPIC) had, in its current forecast, assumed ETF inflows of 100,000 ounces this year, a figure that the market is currently falling significantly short of.
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