Gold Yo-yos on inflation data

Gold yo-yos on inflation data

Gold yo-yos on inflation data, hitting a one-week high early Wednesday after the dollar and Treasury yields weakened following yesterday’s inflation report. The yellow metal started to waffle, dipping on profit-taking, then regaining some ground on this morning’s inflation report. The small boost was followed by a shallow dip caused by further profit-taking.

Wholesale prices in October fell to their biggest decline in 3½ years. The producer price index (PPI), which measures final-demand costs for businesses, receded 0.5% for the month, beating the 0.1% expectation. The Labor Department also reported Wednesday, that on a yearly basis, headline PPI posted a 1.3% increase, down from 2.2% in September.

On Tuesday, the so-called core consumer price index, which excludes volatile food and energy prices, came in below expectations for October, according to data from the Labor Department. The report sent the Dow Jones Industrial Average up almost 500 points and caused traders to reassess bets that the Fed might increase interest rates in December.

Interest rate hikes are typically considered bearish for gold because they make the precious metal less attractive than other assets. Conversely, a pause or cut in interest rates would be bullish for the yellow metal. 

Front-month gold futures rose 0.8% Tuesday to settle at $1,966.50 an ounce on Comex, and the December contract gained 1.5% in the first two days of the week. Bullion gained 6.9% in October after falling 5.1% in September and dropping 2.2% in August. The metal is up 7.7% in 2023. The December contract is currently down $0.60 (-0.03%) an ounce to $1965.90 and the DG spot price is $1958.40.

U.S. core CPI increased 0.2% in October from the previous month and 4% from the previous year. That compares with economists’ estimates of 0.3% and 4.1%. The annual level was the lowest in two years, though it’s still well above the Fed’s target of 2%. The inflation report sent the dollar index to the lowest level in more than two months, making gold a more affordable investment for holders of other currencies. 

About 99.8% of investors tracked by the CME FedWatch Tool are betting that the Fed will keep its federal funds rate unchanged in mid-December, while just 0.2% expect it to raise rates by 25 basis points. That’s a shift from 85.5% and 14.5% the day before.  

The Fed has boosted interest rates by 5.25 percentage points since March 2022 to curb inflation to the 2% level. The Fed kept interest rates unchanged at 5.25% to 5.50% earlier this month. The central bank has raised interest rates only once since May. 

Front-month silver futures increased 3.5% Tuesday to settle at $23.13 an ounce on Comex, and the December contract rallied 3.8% in the first two days of the week. Silver increased 2.2% last month after decreasing 9.5% in September and slipping 0.6% in August. It’s down 3.8% in 2023. The December contract is currently up $0.268 (+1.16%) an ounce to $23.400 and the DG spot price is $23.28.

Spot palladium advanced 4.3% Tuesday to $1,037.00 an ounce, and it advanced 5.7% so far this week. Palladium dropped 10% in October after rising 3% in September and sliding 5.3% in August. Palladium has plummeted 43% so far this year. The current DG spot price is down $19.60 an ounce to $1017.00.

Spot platinum rose 3.1% Tuesday to $898.30 an ounce and increased 5.6% so far this week. Platinum gained 3.5% in October after declining 6.6% last month and advancing 1.7% in August. Platinum is down 16% in 2023. The DG spot price is currently up $7.40 an ounce to $903.20.

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