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Metals Reverse Gains as Dollar Rallies on Powell’s Speech, Gold Avoids Losses

May 13, 2020 at 18:04 by Vladimir Vyun

Metals, except for palladium, were rising today but by now they have lost their gains. The reason for the disappointing performance seems clear: the speech of Federal Reserve Chairman Jerome Powell. Market participants were listening to it with great interest, wanting to hear whether the Chairman mentions negative interest rates. US President Donald Trump tweeted about the benefits of negative rates yesterday, and traders wanted to know if Fed members agree with such a view. Turns out they do not. While Powell talked about the possibility of additional stimulus, he rejected the idea of negative interest rates outright, signaling that policymakers do not even consider it. The statement propelled the US dollar higher, putting pressure on commodities priced in the greenback.

While the reason for the drop in metal futures seems clear, it is curious that gold managed to avoid losses. Usually, bullion trades inversely to the dollar. And the lack of prospects for even lower interest rates in the United States looks bad for the metal because lower rates are usually beneficial to it. But gold demonstrated an unusual behavior today. Some analysts speculated that it is because of its role as a safe haven. Indeed, Powell talked about how disastrous the impact of the COVID-19 pandemic was on the US economy and how hard it will be for the economy to recover. Experts argued that the grim economic outlook made investors use bullion as a refuge along with the US currency, turning them away from riskier metals used in the industry. Such a theory looks believable considering gold has a limited industry usage compared with other metals, which fell over the trading session.

Futures for delivery of gold in June rallied $9.4 (0.55%) to $1,716.2 per troy ounce as of 18:01 GMT on COMEX today. July contract for silver fell $0.04 to (0.28%) to $15.67 per ounce. Spot price for platinum went up by $2.34 (0.31%) to $762.27 per ounce, and palladium plunged by $37.07 (2.00%) to $1,818.17 per ounce. Copper for delivery in July dropped $0.009 (0.38%) to $2.35 per pound.

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