Gold News

Gold Price Unmoved as US Inflation Beats Forecasts, Fed Rates Show Record Real Jump

The PRICE of GOLD was little changed Thursday in London, holding in the middle of this week's $30 trading range as the release of December's US inflation data proved almost as much of a damp squib as yesterday's approval and launch of Bitcoin ETFs.
Widely seen as a key 'risk event' for financial markets and gold bullion prices because of the implications for Federal Reserve interest-rate cuts, December's Consumer Price Index came in 0.3% above November's reading according to the Bureau of Labor Statistics' first estimates.
That beat analyst forecasts of 0.2% for the headline rate but matching consensus predictions for the 'core' cost of living excluding fuel and food.
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Year-over-year for 2023, today's BLS data put headline US inflation at 3.3%, just above June and November's 2-year lows, while core inflation slowed to 3.9%, down almost 3 percentage points from fall 2022's four-decade high and the weakest pace since May 2021.
That put the Fed Funds interest rate 1.3% per year above core inflation, higher by more than 3 percentage points for the 2nd year running from end-2021's modern era low for the real rate of interest, with the steepest 2-year rise in at least 6 decades.
Chart of Fed Funds interest rate (blue) vs. core CPI inflation (red). Source: St.Louis Fed
While US Treasury bond prices slipped on today's inflation news, driving 10-year yields up to the highest since mid-December – just before the Fed confirmed its plans to cut rates 3 times in 2024 – gold prices slipped only to $2029 per Troy ounce, midway between this week's peak and trough so far.
Global stock markets fell harder, down 0.4% on the MSCI World Index, while silver prices dropped within 10 cents of last Thursday's 3-week low to trade at $22.78 per Troy ounce.
So-called cryptocurrency Bitcoin also retreated, cutting its 1-week gain to 6.1% – one percentage point smaller than the digital asset's average weekly move of the past 10 years in Dollar terms – after briefly touching a 21-month high following yesterday's confirmation that US regulator the SEC has finally approved the launch of exchange-traded trust funds holding BTC.
Betting on the Fed's first 2024 interest-rate cut meantime continued to back March with odds of 2-in-3, while the market consensus for end-year Fed rates actually slipped lower, down 3 basis points to 3.93% per annum according to derivatives exchange the CME's FedWatch tool.
"Money market expectations manifest themselves in quite a bullish mood in the gold futures market," Reuters quotes an analyst at Swiss bank Julius Baer.
"In our view, however, a recession would be required to lure safe-haven seekers back into the gold market. Against this backdrop, we stick to our cautious view on gold."
Of the last 9 recessions in the world's largest economy, only one – the deep but brief Covid Crash of 2020 – began with real Fed rates below December's level of 1.4%.
Ahead of today's US inflation report, "I expect that we will need to maintain a restrictive stance of policy for some time," said New York Fed President John Williams in a speech Wednesday.
"It will only be appropriate to dial back the degree of policy restraint when we are confident that inflation is moving toward 2% on a sustained basis."
"It will eventually become appropriate to begin the process of lowering our policy rate to prevent policy from becoming overly restrictive," said Williams' fellow voting Fed member Michelle Bowman – widely seen as a 'hawkish' governor of the US central bank – on Monday.
"[But] in my view we are not yet at that point. And important upside inflation risks remain."

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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