Gold Drops from Fresh 10-Week High as US Inflation Slows, Real Rates Drop

The PRICE of GOLD fell in London on Thursday, losing $80 per ounce from a new 10-week high despite interest-rate expectations continuing to soften as weak US inflation data contrasted with solid jobs market figures.

Forecast to slow from 5.5% to 4.9% annual inflation, the Producer Price Index slowed to 4.7% year-on-year growth in July, the Bureau of Labor Statistics said.

Initial claims for jobless benefits meantime rose for the 3rd week running, separate data said, but only after hitting a 57-year low in mid-July, while continuing claims for unemployment insurance fell back towards early April's 2-year low.

Trading in CME Fed Funds futures contracts edged the consensus forecast for year-end US interest rates lower again, down to the lowest since before mid-June's "hawkish hold" at the first Fed meeting under new chairman Kevin Warsh.

Inflation-protected bond yields also fell again, trading 9 basis points below end-July's touch of 2.47%, the highest such 'real interest rate' since November 2008.

But while the price of gold dropped 1.8% from last night's new peak at $4449 per troy ounce, the week-to-week pattern extended its return to the historic relationship of real rates and gold prices moving in the opposite direction.

Dramatically snapped during the post-pandemic inflation of 2021-2023, the negative correlation is shown here with the gold price inverted.

"Gold does not pay income, so higher real yields increase the opportunity cost of holding it," said Swiss bank and London bullion clearers UBS in a note last week.

"But we expect inflation to gradually moderate, allowing the Fed to hold interest rates steady this year before resuming easing in 2027."

Weaker US inflation "continues the steady stream of data that have tempered expectations of monetary tightening," says a commodities note from Australasian bank ANZ following yesterday's Consumer Price Index release, "and should provide further support for gold in the coming months."

Silver today dropped harder than gold, losing as much as 3.8% from Wednesday morning's new 7-week high before steadying around $64.50 per troy ounce.

The Dollar meantime held steady on the FX market, with its trade-weighted DXY index against the world's other major currencies trading 1.8% beneath late-June's 13-month high.

ChatGPT owner Anthropic is planning to float on the US market at a value of $2 trillion, press reports said Thursday, while shares in $5.4 trillion AI chipmaker Nvidia (Nasdaq: NVDA) rallied towards the highest since mid-May's all-time record after CEO Jensen Huang tried to calm investors in the company's existing bonds after it announced plans to issue half-a-trillion dollars in new debt.

Tech-heavy Korean index the Kospi has now rallied by 21.8% from the near 4-month low it hit at the end of July. But it remains more than 1/4 below mid-June's record peak.

Crude oil meantime fell over $3 per barrel of Brent from yesterday's 2-week high above $90 despite no progress towards US-Iran talks over re-opening the Strait of Hormuz.