Gold spiked on this morning’s key inflation report to over $2050 an ounce, then dropped a tad on profit-taking.
Fed watchers were heartened by the Labor Department’s consumer price index report that showed a small rise of 0.4% last month, but critically, missed the forecast for the annual basis numbers, hitting 4.9% rather than the expected 5% and the lowest annual pace since April 2021. While the monthly increase was in line with Wall Street expectations. Meanwhile real average hourly earnings, adjusted for inflation, rose 0.1% for the month but were still down 0.5% from a year ago.
The consumer price index data for April is likely to influence the Federal Reserve’s next move on interest rates. Central bank policymakers have indicated that they consider labor market conditions and inflation data when making monetary policy decisions. With inflation remaining seemingly under control, the Fed is more likely to pause a series of interest rate hikes.
The Fed raised rates by another 25 basis points last week. Higher interest rates are typically bearish for gold, because they make the yellow metal less attractive as an alternate investment, but a pause or an end to the rate hikes would be bullish.
June gold futures rose 0.5% Tuesday to settle at $2,042.90 an ounce on Comex, and the front-month contract increased 0.9% in the first two days of the week. Bullion increased 0.6% in April after gaining 8.1% in March. The metal fell $2.40 in 2022. Currently, the June contract is slightly down $0.60 (-0.03%) an ounce to $2042.30 and the DG spot price is $2041.50.
After this morning’s CPI numbers, about 88% of investors tracked by the CME FedWatch Tool are betting that the Fed will keep interest rates unchanged at the next meeting in June, while 12% expect another 25 basis point rate hike. That’s a shift from 84.5% expecting rates to stay unchanged a day earlier.
New York Fed President John Williams said Tuesday that it’s too soon to say whether the Fed is done with its interest rate hikes.
“We haven’t said we’re done raising rates,” Williams told CNBC after a speech. “We’re going to make sure we’re going to achieve our goals and we’re going to assess what’s happening in our economy and make the decision based on that data.”
The Fed has raised rates by 25 basis points three times this year following rate hikes of 50 basis points in December and 75 basis points each in June, July, September and November 2022. The federal funds rate is currently at 5.00% to 5.25%.
Investors are also closely watching a standoff in Washington over the U.S. debt ceiling and a banking crisis which could threaten economic growth. Uncertainty like that can boost gold as a haven asset.
July silver futures rose 0.3% Tuesday to settle at $25.90 an ounce on Comex, though the front-month contract decreased 0.1% in the first two days of the week. Silver gained 4.4% in April after increasing 15% in March. It rose 3% in 2022. The July contract is currently up $0.037 (+0.14%) an ounce to $25.935 and the DG spot price is $25.70.
Spot palladium increased 0.8% Tuesday to $1,593.50 an ounce and is up 4.5% so far this week. Palladium rose 2% last month after rising 3.7% in March. Palladium lost 5.7% in 2022. Currently, the DG spot price is up $28.80 an ounce to $1635.50.
Spot platinum gained 2.6% Tuesday to $1,113.60 an ounce, and it advanced 4.3% in the first two days of the week. Platinum added 8.5% in May after increasing 3.7% in March. Platinum surged 10% in 2022. The DG spot price is currently up $3.20 an ounce to $1117.20.
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