Gold News

Gold Below $2300 as Global Shipping Inflation Raises Interest Rate Forecasts

The GOLD PRICE fell through $2300 per ounce for the first time in a fortnight on Wednesday and silver dropped to a 6-week low against a rising US Dollar as a rebound in inflation fears, compounded by worsening supply-chain delays and bottlenecks in global shipping, saw Western stock markets fall while borrowing costs rose in the bond market.
Betting in the futures market today hiked the year-end Fed Funds outlook to 4.92% per annum – still below the US central bank's on 'dot plot' prediction of 1 interest rate cut to 5.1% by New Year's Eve – while the Dollar rose to end-April levels on its trade-weighted index against the world's other major currencies, including a new 4-decade high versus the tumbling Japanese Yen.
Dollar gold prices dropped to $2294 per Troy ounce – down more than $150 from late-May's record high – while silver bullion touched $28.58, almost 12.1% beneath last month's 11.5-year peak.
Western government bond prices also fell amid today's rising inflation fears, pushing up 10-year US Treasury borrowing costs to 2-week highs above 4.30% per annum.
Typically moving in the same direction as long-term bond prices, gold bullion has hit a series of new all-time highs since the post-Covid surge of inflation was spurred by supply-chain problems worldwide.
Chart of NYSE 10-year US Treasury bond future (blue) vs. the price of gold. Source: Google Finance
"Inflation in the US remains elevated, and I still see a number of upside inflation risks that affect my outlook," said Federal Reserve Governor Michelle Bowman on Tuesday, repeating her view that interest rates need to stay higher for longer.
"The bumpiness of inflation data so far this year has not inspired confidence" in falling cost pressures, agreed Bowman's fellow 2024 voting member Mary Daly of the San Fran Fed in separate remarks.
New data Tuesday said Canada's inflation rate accelerated last month from April's 3-year low, defying analyst expectations for a further slowdown with a reading of 2.9%.
Australia today reported inflation of 4.0% for May, 0.4 points faster than April and the sharpest annual pace since November.
May's US inflation on the core PCE index – the Fed's preferred measure, and last reported at a 3-year low of 2.8% for April – is due out Friday.
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"[Last week's] strong US services data also bolstered the case for a more hawkish Fed," notes commodities strategist Daniel Hynes at Australasian bank ANZ.
But "copper [has] found some support in Asian trading after weak Chinese economic data fuelled hopes of further stimulus measures from Beijing."
Brent crude meantime steadied above $85 per barrel on Wednesday, near a 2-month high.
The Baltic Dry Index – a measure of global shipping costs – edged back towards a 2-week low. But while it's sharply beneath last November's 18-month peak, the BDI is currently 68.3% higher than this time last year.
"I'm lovingly calling the market now 'Covid junior'," the New York Times quotes one logistics executive, "because in a lot of ways we're right back to where we were during the pandemic."
The prospect of rail strikes in Canada, dockworker strikes on the East and Gulf coasts, and a pay dispute at ports in Germany risk worsening supply-chain delays and bottlenecks already hitting global shipping.
Hit by drought, traffic through the Panama Canal won't return to normal levels until October, authorities say, while attacks by Houthi forces in the Red Sea are forcing carriers to divert Asia-Europe deliveries around southern Africa.
Dry-bulk traffic through the Suez Canal is down nearly 4/5ths this month from June 2023. 
Fresh attacks by the Iran-backed Houthi – vowing to continue until Israel ends its invasion of Gaza – have in the last 7 days killed one mariner, sunk a cargo carrier, and forced the crew of another to abandon ship.
The International Transport Workers' Federation (ITF) marked International Seafarers Day on Tuesday by urging the international community to take action to ensure the safety and security of crews in the region.
With the far-right National Rally projected to win the first round of France's snap parliamentary election on Sunday, gold priced in Euros today dropped towards 2-week lows beneath €2150 per Troy ounce.
The UK gold price in Pounds per ounce meantime fell to an 8-session low beneath £1820 as opinion polls continued to predict a landslide defeat of the ruling Conservative Party by socialist Labour a week tomorrow, aided by growing support for the far-right Reform Party.
More industrial precious metal platinum held firmer, trading near $1000 per ounce on Wednesday, but palladium – spiking twice on a 'short squeeze' in the past week – fell back to $925, erasing the last few dollars of that move even as physical wholesale dealers continued to note rising lease-rate costs for borrowing the metal.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver, platinum and palladium 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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