Gold futures touch 3-week highs as CPI data signals downward trend for inflation

Dow Jones05-15

MW Gold futures touch 3-week highs as CPI data signals downward trend for inflation

By Myra P. Saefong

Prices for the yellow metal top $2,390 an ounce intraday

Gold futures touched their highest levels in more than three weeks Wednesday after U.S. government data revealed a slowdown in the rate of inflation, feeding expectations for the return of interest-rate cuts this year.

Consumer prices rose 0.3% in April - less than the 0.4% increase forecast by economists polled by The Wall Street Journal. The so-called core rate of inflation, which strips out food and energy, was up by 0.3% - the smallest rise in four months.

The data confirmed a "downward trend for inflation, raising optimism" that the Federal Reserve will resume interest-rate cuts later in the year," Joy Yang, head of product management and marketing at MarketVector Indexes, told MarketWatch. "With interest cuts back on the radar, the dollar is weakening. This should attract U.S. investors back into gold."

On Comex, June gold added $31.20, or 1.3%, to $2,391.10 an ounce. It traded as high as $2,392.60, the highest intraday level for a most-active contract since April 22, FactSet data show.

"Although inflation is trending down, it has been stubbornly sticky," said Yang.

The Fed is very U.S.-focused, "balancing backward-looking data with upcoming U.S. elections," she said. Gold markets, meanwhile, are "global - and as the gap between U.S. interest rates and the rest of the world widens, the rest of the world is feeling the pain of 'our currency, your problem'."

Read: Powell says he expects inflation to move down but isn't completely confident in this forecast

"As the rest of the world tries to reduce their dependency on the dollar, gold has benefited, with continued central bank stock piling" of gold, Yang said. "This has kept gold prices up, despite previously strengthening dollar."

Now, "with interest cuts back on the radar, the dollar is weakening, this should attract U.S. investors back into gold," she said.

At the same time, gold-related stocks, such as gold miners, which have previously "delinked" from gold prices, are "now reclaiming their role as leveraged play on gold prices," Yang said.

She said the MVIS Global Junior Gold Miners Index GDXJ, which tracks the performance of the most liquid small-cap companies in the global gold and silver mining industries, was up 15% year to date, and is showing a jump from overnight close.

"The return of interest rate cuts, U.S. demand, combined with the potential negative impact of sticky inflation...has the potential to drive gold prices up further beyond all time highs," said Yang.

Most-active gold futures last marked a record-high settlement at $2,413.80 on April 19.

-Myra P. Saefong

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

 

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May 15, 2024 11:53 ET (15:53 GMT)

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