Gold Holds Downward After US Inflation Strengthens
Gold held off losses after hotter US inflation data raised the odds of a Federal Reserve interest rate hike this year. Spot gold traded around US$4,720/oz, after falling 0.4% on Tuesday.
The rise in inflation was evident in the US April CPI, which recorded its biggest jump since 2023. At the same time, real wages (net of inflation) fell for the first time in three years, indicating persistent cost-of-living pressures.
Interest rate markets have also adjusted: overnight-indexed swaps now price in a more than 40% chance of a Fed rate hike by year-end, up from nearly zero at the end of last month. Correspondingly, US yields have risen as investors demand higher compensation when high energy prices make inflation sticky.
In theory, higher interest rates tend to pressure gold because it does not yield interest. However, gold has been relatively resilient, and JPMorgan considers this pattern "asymmetric": gold is more resilient when interest rate expectations rise, but can be more responsive when yields fall, with demand (particularly central bank purchases) supporting it.
In other metals markets, silver rose 0.7% to US$87.07 and recorded an 18% gain so far in May. The Bloomberg Dollar Index was relatively flat after rising 0.3% in the previous session.
5 key points:
- Gold held around US$4,720/oz after falling 0.4% on Tuesday.
- US April CPI surged the most since 2023; real wages fell for the first time in three years.
- Markets are now pricing in a >40% chance of the Fed raising interest rates by the end of the year.
- US yields are rising; generally, rising interest rates are negative for gold, but gold prices remain relatively resilient.
- JPMorgan highlights strong demand, particularly central bank purchases, as a key support for gold. (asd)*
Source: Newsmaker.id
