Gold prices edged higher on Thursday, trading near the $2,400 mark after a sharp surge in the previous session as dollar and bond yields weakened after US inflation data boosted the possibility of the Federal Reserve cutting interest rates as early as September.
Economic Data Shows Easing Inflation
Economic data showed that the Consumer Price Index (CPI) rose 0.3% in April after increasing 0.4% in March, below expectations that forecast monthly price growth of 0.4%, while retail sales remained flat last month, defying expectations for a 0.4% rise on a monthly basis.
President Joe Biden said in a statement released by the White House: “Combating inflation and lowering costs is my top economic priority, and inflation has come down more than 60% from its peak, and core inflation is down to its lowest level in three years.”
Dollar and Yields Retreat
The dollar weakened against a basket of other major currencies, making the dollar-denominated precious metal less expensive for holders of other currencies. The yield on the 10-year Treasury note also fell to its lowest level in over a month.
The decline in US consumer prices, along with last week’s weak jobs report and the lower-than-expected US jobs report for April, is good news for policymakers at the Federal Reserve who are waiting to see renewed progress on inflation before lowering borrowing costs.
Bullion is known as a hedge against inflation, but rising interest rates increase the opportunity cost of holding gold, which does not yield.
Gold and Dollar Now
Gold futures are now down 0.13% to $2,392 an ounce.
While spot gold is up about 0.06% to $2,387 an ounce.
On the other hand, the dollar index is down about 0.02% to 104.195 points.
Other Metals
Spot silver fell 0.4% to $29.56 an ounce, after hitting its highest level since February 2021 earlier in the session.
Palladium fell 0.2% to $1,009.68.
While platinum rose 0.5% to $1,068.67, reaching its highest level since May 22, 2022.
Japanese Yen Rises on Falling US Yields
The Japanese yen rose in the Asian market on Thursday against a basket of major and minor currencies, continuing its gains for the second consecutive day against the US dollar, reaching a 10-day high, as the Japanese currency moves higher on the back of the current decline in US yields.
US Treasury Yield Decline
The yield on the 10-year US Treasury note fell by more than 0.7 basis points on Thursday, deepening its losses for the fourth consecutive session, reaching a six-week low of 4.313%, reducing investment opportunities in the US dollar.
This development in the US bond market comes after headline inflation in the US slowed in line with market expectations in April, boosting the chances of the Federal Reserve cutting interest rates as early as September or perhaps even sooner.
Japanese Economy
Data released in Tokyo today showed that the Japanese economy contracted by 0.5% in the first quarter of this year, worse than economists’ expectations of a 0.3% contraction, and revised the reading for the last quarter of last year to growth of 0.1% from a contraction of 0.1%.
Japanese Economy Contraction Exceeds Expectations in Q1
This data complicates the challenge facing policymakers at the Bank of Japan as they look to raise interest rates again this year from near zero levels.
Fed Comments on Yesterday’s Inflation Data
Chicago Federal Reserve Bank President Austan Goolsby welcomed the slowdown in price growth in April but said there is still room for further easing. Speaking on Wednesday after a report showed that price growth excluding food and energy slowed in April for the first time in six months, Goolsby said he would like to see more of these reports before supporting interest rate cuts.
“Inflation has shown ‘some improvement’ compared to the last time, which is largely what we expected, but it’s still higher than what we were seeing in the second half of last year,” Goolsby said in an interview with the radio program “Marketplace.” “So there’s still room for improvement.”
The Chicago Fed president, who does not have a vote on monetary policy this year, described the path of easing inflation as bumpy and pointed to housing inflation as a key metric he is watching. Federal Reserve officials have pushed back expectations for the first rate cut, stressing the need to keep borrowing costs high for longer amid disappointing inflation rates.
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