Gold higher on inflation report ahead of Fed

Gold higher on inflation report ahead of Fed

Gold higher early Wednesday on inflation report showing U.S. inflation growth eased in May, ahead of Fed meeting. The inflation data supports speculation that the Federal Reserve will keep interest rates unchanged.

The U.S. consumer price index rose at the lowest annual rate in two years last month, signaling that the Fed’s efforts to curb the rising cost of goods and services are starting to pay off. The central bank has raised rates at its last 10 meetings to curb inflation.

Investors are awaiting the Fed’s June monetary policy decision due out Wednesday afternoon at 2 pm Eastern Daylight Time for further direction. The central bank is widely expected to leave the benchmark federal funds rate at 5.00% to 5.25%. Holding rates unchanged is considered bullish or neutral for gold because rate increases are bearish, making the yellow metal less attractive than other financial assets. 

August gold futures fell 0.6% Tuesday to settle at $1,958.60 an ounce on Comex, and the front-month contract dropped 0.9% in the first two days of the week. Bullion retreated 0.9% in May after increasing 0.6% in April and 8.1% in March. The metal fell $2.40 in 2022. Currently, the August contract is up $11.30 (+0.58%) an ounce to $1969.90 and the DG spot price is $1959.20.

U.S. CPI rose 4% last month, compared with a year earlier, the smallest increase since March 2021. It gained 0.1% from April. Both figures were in line with economists’ estimates. But so-called core CPI, the index excluding volatile food and energy prices, wasn’t as rosy, with gains of 5.3% from a year earlier and 0.4% from a month earlier. 

Fed policymakers have indicated that they closely follow both labor market data and inflation when determining monetary policy. 

About 93.1% of investors tracked by the CME FedWatch Tool are betting that the Fed will keep interest rates unchanged this afternoon, while 6.9% expect the central bank to raise rates by another 25 basis points. Most investors are still betting on a rate hike at the next meeting in July, though. 

The Fed has increased rates by 25 basis points three times this year following hikes of 50 basis points in December and 75 basis points each in June, July, September and November 2022 and smaller increases in March and May of last year. The rate hikes have totaled 5 percentage points since March 2022.

In addition to the Fed, the European Central Bank is expected to raise its benchmark rate Thursday, while the Bank of Japan is expected to hold steady on Friday. 

July silver futures dropped 1% Tuesday to settle at $23.82 an ounce on Comex, and the front-month contract tumbled 2.4% in the first two days of the week. Silver decreased 6.5% in May after gaining 4.4% in April and 15% in March. It rose 3% in 2022. The July contract is currently up $0.188 (+0.79%) an ounce to $24.010 and the DG spot price is $24.00.

Spot palladium increased 1.4% Tuesday to $1,383.50 an ounce and is up 3% so far this week. Palladium fell 9.3% last month after rising 2% in April and 3.7% in March. Palladium lost 5.7% in 2022. Currently, the DG spot price is up $31.90 an ounce to $1410.50.

Spot platinum fell 1.4% Tuesday to $986.20 an ounce and is down 3.3% so far this week. Platinum retreated 7.4% in May after adding 8.5% in April and 3.7% in March. Platinum surged 10% in 2022. The DG spot price is currently down $2.90 an ounce to $982.90.

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