Inflation Cools, Gold Heats Up
7/12/2023
Gold prices experienced a boost after the release of a recent inflation report, which showed a decline in inflation rates. This news led to a rise of over $15 per ounce in the value of gold.
The consumer price index, a key measure of inflation, increased by 3% compared to the previous year, marking the lowest gain since March 2021. On a monthly basis, the index rose by .2%. These figures exceeded the expectations of experts from Dow Jones, who had predicted increases of 3.1% and .3% for the annual and monthly rates, respectively.
Another indicator of inflation, the personal consumption expenditure price index, also revealed a cooling in U.S. inflation during May. This decrease in inflation, coupled with the weakening of the dollar, has made gold a more appealing investment for holders of different currencies.
The decline in the value of the U.S. currency and Treasury yields has been driven by expectations that the consumer price index would demonstrate moderated inflation for the previous month. These developments may influence the Federal Reserve’s actions to control inflation.
In terms of gold futures, the contract rose by .3% on Tuesday, settling at $1,937.10 per ounce on the Comex. Additionally, the front-month contract saw a .2% rally in the first two days of the week. Gold experienced a 2.7% drop in the previous month, following a .9% retreat in May and a .6% increase in April. However, overall, the metal has seen a gain of 5.7% in the first half of this year, compensating for the decline of $2.40 it faced in 2022. At present, the contract has risen by $21.80 (+1.13%), reaching $1,958.90 per ounce, while the spot price stands at $25.10.
According to the CME FedWatch Tool, approximately 92.4% of investors predict that the Federal Reserve will raise rates by 25 basis points at its upcoming July monetary policy meeting.
Conversely, 7.6% expect rates to remain unchanged. The Fed has already increased rates by 25 basis points three times this year, with larger hikes of 50 basis points in December and 75 basis points in June, July, September, and November 2022, as well as smaller increases in March and May of the previous year. In total, these rate hikes amount to 5 percentage points since March 2022.
The Federal Reserve closely monitors both labor market reports and inflation data, and while many investors anticipate another rate hike next month, the impact of higher interest rates on gold is generally bearish. This is due to the fact that higher rates make gold less appealing to investors compared to other assets.
The latest report from the Bureau of Labor Statistics reveals that the U.S. added only 209,000 jobs in the previous month.
Last month, the Federal Reserve decided to keep rates unchanged for the first time after ten consecutive increases. The benchmark federal funds rate was maintained at a range of 5% to 5.25%.
As for silver futures, the contract experienced a .3% decline on Tuesday, reaching $23.28 per ounce on the Comex. The most-active contract has dropped by .8 cents so far this week. Silver faced a 2.4% decrease in June following a 6.5% decline in May and a 4.4% increase in April. In the first half of this year, silver retreated by 4.2% after a 3% rise in 2022. Currently, the September contract has increased by $.81 (+3.50%), reaching $24.10 per ounce, while the spot price is $24.05.
Please note: The following post is intended solely for informational and thought-provoking purposes. It does not claim to accurately predict or forecast real-world outcomes. This editorial expresses an opinion and should not be taken as investment advice or a recommendation regarding specific securities, commodities, or actions. The author cannot be held responsible for these opinions.
