Gold Drops On Higher-Than-Expected Inflation

Gold Dropping On Higher Than Expected Inflation

Gold drops Wednesday morning on higher-than-expected inflation. The yellow metal had been steady overnight as investors awaited the release of the key U.S. inflation report but lost over $10 an ounce on the release of the data.

June’s inflation rose sharply higher, jumping 9.1% from a year ago per the Bureau of Labor Statistics. The consumer price index’s jump exceeded the 8.8% Dow Jones estimate, sending stocks tumbling with Dow futures down over 300 points. Once again, U.S. inflation rose at its fastest pace going back to December 1981.

The U.S. consumer price index for June comes out Wednesday morning, followed by the Beige Book report on the state of the economy in the Fed’s 12 districts in the afternoon. Another high inflation report will likely fuel the Federal Reserve’s aggressive interest rate strategy later this month and for the rest of the year.

High inflation is typically bullish for gold, which is often a haven asset, but the yellow metal has been pressured by 20-year highs in the dollar, which make gold more expensive for holders of other currencies. The dollar has gotten a boost from recent and anticipated interest rate hikes.

August gold futures slipped 0.4% Tuesday to settle at $1,724.80 an ounce on Comex. The front-month contract dropped 1% in the first two days of the week. Bullion fell 2.2% in June after tumbling 3.3% in May, its worst month since September. The metal retreated 3.5% in 2021. The August contract is currently down $17.20 (-1.00%) an ounce to $1,707.60 and the DG spot price is $1,713.10.

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.17% Tuesday to 1,021.53 metric tons, Reuters reported.

The high inflation number will likely solidify expectations that Fed policymakers will boost interest rates by another 75 basis points later this month to try to rein in skyrocketing inflation. U.S. inflation  remained high in May, according to the Fed’s favorite measure, though there were signs that it started to ease.

The next Fed policy decision is due out July 27. Additional meetings this year are scheduled for September, November and December.

A positive U.S. jobs report Friday seemed to indicate that moves to tighten monetary policy haven’t had a negative impact on the labor market yet, though fears of a recession persist.

The International Monetary Fund cut its growth projections for the U.S. economy for 2022 and 2023 on Tuesday. The IMF also raised its unemployment forecasts through 2025. U.S. GDP will likely expand 2.3% this year, a slower pace than the 2.9% the IMF projected a month ago.

Higher interest rates and bond yields raise the opportunity cost of holding gold, pressuring the yellow metal. But gold still has some support because of uncertainty over the pandemic and the war in Ukraine.

In other economic events, release of the U.S. producer price index and weekly initial jobless claims and comments from Fed Governor Chris Waller are scheduled for Thursday. Retail sales, the Empire state manufacturing index, and the University of Michigan consumer sentiment report are due Friday.

September silver futures decreased 0.9% Tuesday to settle at $18.96 an ounce on Comex, and the front-month contract is down 1.5% so far this week. Silver declined 6.2% in June after falling 6.1% in May. It retreated 12% in 2021. Silver prices are tied to industrial demand. The September contract currently down $0.158 (-0.83%) an ounce to $18.800 and the DG spot price is $19.03.

Spot palladium tumbled 5.2% Tuesday to $2,065.50 an ounce, sending its two-day drop to 5.5%.  It fell 2.9% in June after losing 14% in May, the biggest monthly decline since September. It retreated 22% in 2021. Currently, the DG spot price is down $21.80 an ounce to $2,027.50.

Spot platinum decreased 3% Tuesday to $853.30 an ounce and is down 5.4% so far this week.  It lost 7.2% in June after gaining 2.3% in May and losing 9.4% last year. The DG spot price is currently down $7.00 an ounce to $849.10.


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