Gold Bobbles on inflation report

Gold Bobbles on inflation report

Gold bobbles on the release of key U.S. inflation report as investors digest how the report’s uptick may influence the Federal Reserve’s plans for future interest rate increases.

Inflation hit its biggest monthly increase for 2023 in August per the consumer price index. It rose 0.6% for the month, and was up 3.7% from a year ago, per the U.S. Department of Labor. The forecast had called for a 0.6% and 3.6% increase, respectively. However, excluding volatile food and energy, the core CPI increased 0.3% and 4.3%, against estimates of 0.2% and 4.3%. Federal Reserve officials focus more on core data as it offers a better indication of long term inflation. Spot Gold dipped $4 an ounce on the news to $1909, but then regain positive ground to $1914 and continues to waver.

The U.S. consumer price index report for August is expected to show a third subdued month of inflation on Wednesday. More important than the top headline is so-called “core inflation” – the prices of goods excluding volatile food and energy costs. A minor increase there may derail any Fed plans to continue the central bank’s cycle of interest rate increases, which is considered bearish for gold. 

Front-month gold futures fell 0.6% Tuesday to settle at $1,935.10 an ounce on Comex, and the December contract retreated 0.4% in the first two days of the week. Bullion dropped 2.2% in August after rising 4.1% in July and losing 2.7% in June. The metal is up 6% in 2023. The December contract is currently up $1.20 (+0.06%) an ounce to $1936.30 and the DG spot price is $1913.00.

The Fed has raised rates by 5.25 percentage points since March 2022 in an effort to curb inflation. About 97% of investors tracked by the CME FedWatch Tool are betting that the Fed will keep its federal funds rate unchanged this month at 5.25% to 5.50%. Just 3% expect it to raise rates another 25 basis points. Most still expect the Fed to hold in November and December, too, but by much slimmer margins.

A pause in the cycle of interest rate hikes would be considered bullish for gold, which comes under pressure when rates go up. The central bank closely watches inflation statistics and labor market data when determining its next moves. 

Investors will also be watching the European Central Bank, which is set to announce a monetary policy decision Thursday. High inflation may lead the ECB to its 10th consecutive interest rate hike.  

Reports on U.S. retail sales, the producer price index and weekly initial jobless claims are also set to come out Thursday, with U.S. industrial production, University of Michigan consumer sentiment and the Empire manufacturing index on Friday.  

Front-month silver futures edged up less than 0.1% Tuesday to settle at $23.40 an ounce on Comex, and the December contract gained 1% in the first two days of the week. Silver slipped 0.6% in August after gaining 8.5% in July and dropping 2.4% in June. It’s down 2.7% in 2023. The December contract is currently down $0.167 (-0.71%) an ounce to $23.235 and the DG spot price is $22.92.

Spot palladium increased 2% Tuesday to $1,259.00 an ounce and is up 3.8% so far this week. Palladium slid 5.3% last month after rising 3.6% in July and falling 9.5% in June. Palladium has plummeted 30% so far this year. The current DG spot price is slightly down $0.80 an ounce to $1261.50.

Spot platinum gained 1.3% Tuesday to $917.20 an ounce and rose 1.9% so far this week. Platinum advanced 1.7% in August after gaining 5.2% in July and falling 9.3% in June. Platinum is down 14% in 2023. The DG spot price is currently down $10.80 an ounce to $906.00.

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