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Gold Price Erases US-Inflation Spike But Strong Ex-Dollar as Equities, Bonds, Crypto Sink

GOLD PRICES erased all of Friday's $30 spike in US Dollar terms on Monday but held near 1-month highs in Euros, Sterling and most other major currencies as global financial markets sank further following last week's surprise 4-decade high in new US inflation data, writes Atsuko Whitehouse at BullionVault.
Equities tumbled, as did crypto currencies – with Bitcoin hitting 18-month lows as its No.1 exchange and a leading lender of crypto suspended client withdrawals – while commodities also fell, edging crude oil lower from last week's attempt at fresh 14-year highs amid sanctions against Russia over its continuing invasion of Ukraine.
Sinking bond prices saw interest rates on 2-year US Treasury debt leap to the highest since the global financial crisis of 2008, rising above 10-year rates and so inverting the yield curve in a repeat of March's recession warning.
Spot gold prices in Dollar terms fell back to $1840 per ounce after touching a 1-month high at $1879 in Asian trade early Monday.
US consumer price surged to 8.6% in the year to May, the highest level since December 1981, while US consumer sentiment on the University of Michigan's index plunged to a record low for June.
"I fear that [inflation is] still going to get worse," Mohamed El-Erian, a chief economic advisor to German multinational financial services company Allianz, on Sunday. 
Chart of Fed Funds rate vs. US CPI inflation. Source: St.Louis Fed
'We're now in a period of stagflation, meaning lower growth and higher inflation.
"The darkest [outlook] is that inflation persists, heads to 9%, and people start worrying that it's gonna go to 10% and [above]."
With the UK-based Barclays Bank becoming on Monday the first major institution to predict that the Federal Reserve will raise its key overnight interest rate by three-quarters of a percentage point at its meeting on Wednesday – the first such hike since 1994 – yields on 3-year, 5-year and 7-year Treasury bonds all jumped today to reach above the 30-year's yield, joining the 10-2 spread in signalling that bond investors believe interest rates will need to come down again sometime in the future, signalling fears of economic recession.
Traders in interest-rate futures now see a 1-in-5 chance of a 75-basis point hike to 1.75% rates at Wednesday's meeting, increasing from a probability of just 1-in-30 a week ago, according to the CME derivative exchange's FedWatch tool.
With the Fed more widely expected to raise interest rates by another half-percentage point instead, the Dollar Index – a measure of the US currency's value versus its major peers – advanced sharply Monday morning to a fresh three-week high above 104, nearing this spring's 2-decade highs.
The strength of the American currency pushed the Japanese Yen down for the 7th session in a row, hitting a 24-year low of ¥135 per Dollar.
The policy divergence between the dovish Bank of Japan and more hawkish Western central banks was underlined Monday as the BoJ said it would buy ¥500 billion ($3.7bn) of Japanese government bonds tomorrow as part of its policy to squash benchmark 10-year yields within 0.25 percentage points of its 0% target.
Gold prices for Japanese investors hit ¥8,139 per gram early Monday morning, the highest since 19 April, when prices in Japanese Yen reached all-time high at ¥8,174.
Meanwhile wholesale bullion in the spot market was firm at £1519 per ounce for UK investors amid news that the UK economy shrank in April, missing forecasts and confirming that the post-pandemic recovery stalled in January.
"The UK is perilously close to a recession," says one economist.
Gold priced in Euros edged lower by 0.6% to €1768 per ounce as European stocks tumbled on Monday, with the pan-European Stoxx 600 losing 2.2%.  
Gold's overnight spike – which came as Asian equities fell hard, with Tokyo losing over 3% - saw prices on the Shanghai Gold Exchange trade at a discount to London, discouraging new imports of bullion from the UK's central storage hub to China, the precious metal's No.1 consumer market.
Bitcoin meantime tumbled as much as 12% to below $24,000, the lowest in 18 months, as the worsening crypto crash saw Binance – the largest exchange in the world for such digital assets – to ban all of its users from withdrawing their Bitcoin after crypto-lender Celsius paused withdrawals, swaps and transfers on its platform.  
One analyst said "Crypto is having its own version of Black Monday."

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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