Gold Reclaims Some Turf on Inflation

Gold Reclaims Some Turf on Inflation

Gold reclaims some turf on Wednesday morning’s inflation data from the CPI, one of the economic indicators the Fed uses to pace future interest-rate hikes. Earlier Wednesday the yellow metal traded near three-month lows, but began its recovery when the dollar and treasury yields dipped ahead of the CPI report.

The consumer price index (CPI) jumped 8.3% in April, beating the forecasted 8.1% rise. The Bureau of Labor Statistics report does show a slight ease from March’s peak, while skating close to the nation’s highest level since 1982. Core CPI, which excludes food and energy, was also higher than expected, rising 6.2%. Shelter costs, which comprise about one-third of the CPI, rose at their fastest pace since 1991. Inflation-adjusted earnings continued to decline for workers, falling 2.6% over the past year due to the surging cost of living.

Gold is a traditional hedge against inflation but has taken a back seat to other risk-off assets this year, including the dollar and Treasurys. Their strength has pressured the yellow metal — and so has the Fed’s interest-rate increases.

Front-month gold futures fell 1% Tuesday to settle at $1,841.00 an ounce on Comex, the lowest closing price for a most-active contract since Feb. 10. The June contract decreased 2.2% in the first two days of the week. Gold retreated 2.2% in April, its worst month since September, and 3.5% in 2021. The June contract is currently up $10.30 (0.56%) an ounce to $1,851.30.

The dollar traded near a 20-year high on high inflation and the prospect of an economic slowdown. The rising value of the U.S. currency pressured dollar-denominated gold because it makes the precious metal more expensive for holders of other currencies.

The inflation numbers Tuesday are likely to influence the size of the next Fed rate hike, anticipated in June. The central bank raised rates by half a percentage point last week, in the largest increase in more than 22 years. It was the second rate hike this year.

Many investors are now questioning whether the Fed waited too long to try to get a handle on inflation. The vast majority of investors expect the Fed to raise rates another half percentage point to a range of 1.5% to 1.75% at policymakers’ next scheduled meeting in June, according to the CME’s FedWatch Tool.

Economic uncertainty, the war in Ukraine and the coronavirus pandemic kept a floor under good prices, which are a traditional hedge against uncertainty.

Front-month silver futures tumbled 1.8% Tuesday to settle at $21.42 an ounce on Comex. The July futures contract retreated 4.2% in the first two days of the week. Silver lost 8.2% in April, its worst monthly performance since September. It fell 12% in 2021. Silver prices are tied to industrial demand. The July contract is currently up $0.4666 (+2.18) an ounce to $21.898.

Spot palladium decreased 0.8% Tuesday to $2,096.00 an ounce, though it’s up 1% so far this week. Palladium touched a record $3,440.76 in March. Russia produces about 40% of the world’s palladium, and Russia’s Nornickel is the world’s largest supplier of palladium. The metal advanced 2.6% in April after declining 8.5% in March. It retreated 22% in 2021.

Spot platinum rose 1.8% Tuesday to $977.50 an ounce and advanced 0.6% in the first two days of the week. The metal retreated 4.4% last month after dropping 4.2% in March. It lost 9.4% last year.


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