Inflation Focus Sees Gold, Silver Slip as Citi Expands London Bullion Trading

GOLD and SILVER PRICES both fell from new 2-week highs in London trading on Monday as the US Dollar rallied and crude oil steadied above pre-Iran war levels, stalling the retreat in market expectations that the US Federal Reserve will soon start raising interest rates to counter inflation, writes Atsuko Whitehouse at BullionVault.

Market consensus for where the Fed funds rate will end 2026 rose 1 basis point to 3.93%, still close to the lowest level since 16 June − eve of last month's "hawkish" FOMC meeting, the first under new Trump-nominated chairman Kevin Warsh − but above the US central bank's own forecast of 3.8%, itself revised up from the Committee's previous projection of 3.4%.

This Wednesday will bring the release of meeting minutes from the Fed's mid-June decision to keep rates on hold at 3.63% per annum.

"Inflation risks have declined over the past four weeks," said new Fed chairman Kevin Warsh at last week's central banking forum in Sintra, Portugal.

"The one-year US inflation swap, which has dropped sharply from a May peak of 3.5% to around 2.1%, points to easing inflation pressures and could help establish a floor beneath precious metals," says spread-betting platform Saxo Bank, noting action in the derivatives market.

Combining information from inflation swaps, Treasury yields and survey data, the Cleveland Fed's model-based measure of 1-year expected inflation fell from May's 3.5% spike to 3.0% in June.

It has correctly called the monthly direction of annual headline Consumer Price Inflation some 60% of the time over the past decade.

May's official CPI reading of 4.2% set a 4-year high for US inflation. June's estimate is due out on Tuesday next week. The Cleveland Fed's next update − tracking inflation indicators for July − will be released the same day.

Spot gold today topped $4200 per troy ounce for the first time since 22 June having after made its first weekly gain in 5 on Friday.

The price of London silver − which finds nearly 60% of end-use demand from tech and other productive applications − rose last week for the first since early May, topping $63 this morning before falling back below $62.

Gold prices meantime lost $50 from this morning's 2-week peak.

Brent crude in contrast reversed a 0.6% dip, made as shipping through the Strait of Hormuz continued to improve and 7 members of the Opec+ cartel of producer nations agreed to raise their collective output target following last month's "ceasefire" between the US and Iran.

"While market sentiment has recently turned more supportive for gold," says a trading note from London bullion clearing bank ICBC Standard following last week's weaker-than-expected US jobs data, "the outlook for US monetary policy will depend not only on employment conditions but also on inflation developments."

Together with US bank J.P.Morgan, UK-headquartered HSBC and Swiss bullion giant UBS, ICBCS is being joined by US financial group Citi as a member of London Precious Metals Clearing Limited, a news release said today.

The current 4 members of LPMCL cleared almost $90 billion per day of gold and silver trading between them on behalf of London bullion market participants in May.

Calling it "a major expansion of Citi's precious metals business," the move − first mooted in the media back in October − "expands the global precious metals market infrastructure, underscoring LPMCL's central role" says the not-for-profit business.