The gains in the consumer price index may influence the Federal Reserve to keep interest rates elevated for some time in their quest to counter inflation. Investors have been anticipating a rate cut in the next few months. Higher interest rates are typically considered bearish for gold, so cuts would be supportive for the precious metal. But holding rates high for a longer period of time would be bearish.
The CPI report spurred advances in Treasury yields and the dollar, which also pressured gold, making the yellow metal less attractive as an alternate investment. The Dow Jones industrial average tumbled more than 500 points.
Front-month gold futures fell 1.3% Tuesday to settle at $2,007.20 an ounce on Comex, and the most-active April contract dropped 1.6% in the first two days of the week. The precious metal slid below $2,000 in intraday trading. Bullion declined 0.2% in January after gaining 0.7% in December and rising 3.2% in November. The metal rose 13% in 2023. The April contract is currently down 3.20 (-0.16%) an ounce to $2004.00 and the DG spot price is $1986.80.
So-called core CPI, the cost of goods excluding volatile food and energy prices, gained 0.4% in January and was up 3.9% from a year earlier, according to data from the Labor Department. That compares with economists’ forecasts for 0.3% and 3.7% respectively. Including food and energy, the CPI rose 0.3% for the month and 3.1% year on year, compared with estimates of 0.2% and 2.9% respectively.
The Fed targets 2% inflation. The central bank has raised interest rates by 5.25 percentage points since March 2022 in an effort to cut inflation, but kept rates unchanged at 5.25% to 5.50% earlier this month.
The next big economic reports will be the producer price index and consumer sentiment on Friday, and U.S. retail sales data and weekly initial jobless claims come out Thursday. A number of Fed officials are also expected to speak over the next few days and may provide further guidance on policymakers’ thinking.
About 91.5% of the investors tracked by the CME FedWatch Tool are betting that the Fed will keep rates unchanged next month, while 8.5% expect a 25 basis point cut. A month ago, more than 80% of investors were anticipating a cut in March. A majority of investors tracked by the tool now also anticipate the Fed will hold rates steady at the following policy meeting in May. A day earlier, most were expecting a rate cut in May. Most are now looking to July.
Front-month silver futures declined 2.7% Tuesday to $22.15 an ounce on Comex, and the March contract slid 2% in the first two days of the week. Silver fell 3.8% in January after dropping 6.1% in December and advancing 12% in November. It ticked up 0.2% in 2023. The March contract is currently up $0.061 (+0.28%) an ounce to $22.215 and the spot price is $22.15.
Spot palladium fell 3.7% Tuesday to $870.50 an ounce and retreated 1% so far this week. Palladium tumbled 11% last month after advancing 8.6% in December and losing 9.5% in November. Palladium plummeted 38% last year. The current spot price is up $66.50 an ounce to $939.50.
Spot platinum lost 1.9% Tuesday to $881.20 an ounce, though it gained 50 cents so far this week. Platinum fell 8% last month after rising 8.1% in December and falling 0.7% in November. Platinum dropped 6.8% in 2023. The spot price is currently up $17.40 an ounce to $898.30.
