Gold jumps on signs of cooling inflation

Gold jumps on signs of cooling inflation

Gold jumps over 1% Wednesday on signs of cooling inflation. The new data fuels outlook for a pause in U.S. interest rate hikes and dinged the dollar. Spot gold jumped 0.9% to $2,021.39 per ounce at 9:04 a.m. EDT, but has since retreated a touch on profit-taking.

This morning’s Consumer Price Index (CPI) report shows rose 0.1% in March less than the forecast of 0.2% in a Reuters poll.

Investors are betting that U.S. interest rate hikes – designed to rein in high inflation – may be nearing a peak. A strong jobs report for March, released last week, increased speculation that the Federal Reserve will again raise rates in May. But reports that the economy may be weakening have signaled that the end may be in sight. 

The International Monetary Fund on Tuesday cut its global economic growth forecasts, saying that the world’s economy is heading for its slowest expansion since 1990. It announced global growth forecasts of 2.8% for 2023 and 3% for 2024, each 0.1 percentage points below the outlooks published in January. The medium-term forecasts were the weakest in more than 30 years. 

June gold futures rallied 0.8% Tuesday to settle at $2,019.00 an ounce on Comex, though the front-month contract fell 0.4% in the first two days of the week. Bullion gained 8.1% last month after decreasing 5.6% in February, its worst performance since June 2021. Gold increased 8.8% in the first quarter. The metal fell $2.40 in 2022. The June contract is slightly down currently by $0.20 (-0.01%) an ounce to $2018.80 and the DG spot price is $2008.50.

Both the U.S. consumer price index for March and the minutes of the last Fed policy meeting are due out Wednesday and are likely to provide direction to the market.

The Fed has raised rates by 25 basis points twice this year following rate hikes of 50 basis points in December and 75 basis points each in June, July, September and November. The federal funds rate is currently at 4.75% to 5.00%. 

About 67.2% of investors tracked by the CME FedWatch Tool are betting that the Fed will raise interest rates by 25 basis points at the central bank’s next policy meeting in May, while 32.8% anticipate the central bank will leave rates unchanged. A week ago, most were betting on the Fed holding rates steady. Fed policymakers have said they track both inflation and labor market statistics when determining monetary policy. 

The U.S. unemployment rate fell to 3.5% in March as labor force participation increased. Nonfarm payrolls grew 236,000 last month, though the pace of hiring slowed. 

A pause or peak in interest rate increases would be seen as bullish for gold, which becomes a more attractive alternate investment when rates go down. 

Silver May futures gained 1.1% Tuesday to settle at $25.19 an ounce on Comex. The metal advanced 0.4% in the first two days of the week. Silver increased 15% in March after retreating 12% in February. It edged up 0.5% in the first quarter. It rose 3% in 2022. The May contract is currently up $0.069 (+0.27%) an ounce to $25.255 and the DG spot price is $2008.90.

Spot palladium increased 2.9% Tuesday to $1,477.00 an ounce, though it’s down 0.6% so far this week. Palladium rose 3.7% in March after plummeting 14% in February. It fell 17% last quarter. Palladium lost 5.7% in 2022. Currently, the DG spot price is up $12.90 an ounce to $1486.50

Spot platinum gained 0.2% Tuesday to $1,003.00 an ounce, though it has retreated 1.5% so far this week. Platinum increased 3.7% last month after falling 5.9% in February. It dropped 6.6% in the first quarter. Platinum surged 10% in 2022. The DG spot price is currently up $18.50 an ounce to $1022.60.

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