Gold futures rose on Tuesday after data showed that US consumer prices rose in March for the fourth consecutive month and that the rate of inflation reached its highest level in 2½ years. Bullion is often seen as a hedge against inflation.
The consumer price index jumped 0.6% in March, the government said on Tuesday, led by rising oil costs. Economists surveyed by the Dow Jones and the Wall Street Journal had forecast a 0.5% rise in the CPI. The twelve-month inflation rate rose to 2.6% in March, from 1.7%.
The reading “slightly exceeded expectations, indicating that the U.S. economy is warming slightly more than expected,” Jason Teed, co-manager of the Gold Bullion Strategy Fund QGLDX,
he told MarketWatch.
He noted that much of the inflationary pressure came from rising gasoline prices and that core inflation was quieter. “Most economies expect these changes to be temporary to lead to an unadjusted stance,” said the Federal Reserve, Teed, who is also research director at Flexible Plan Investments Ltd.
Overall, “gold is responding positively to the news, but short-term metal price movements are not an indication of long-term trends,” he said.
June Gold GC00,
GCM21,
rose $ 8.50, or 0.5%, to $ 1,741.20 an ounce, a day after the precious metal hit the lowest end for a more active contract since April 5, according to FactSet data .
“Inflation is likely to rise further and the numbers for the coming months may look abnormally large as the basic effects of the 2020 blockages distort the data,” wrote Fawad Razaqzada, market analyst at ThinkMarkets, referring to the distortions in the monthly inflation figure resulting from abnormally high or low levels in the period from a year ago.
“The Fed expects inflation to settle after a temporary acceleration. However, the key risk is if their assumption is wrong and price pressures remain high. In fact, with rising consumer inflation expectations, this could translate into a real rise in price levels, ”he said.
The gold move in the session so far also comes as bond yields, which compete against gold for shelter demand, fell after inflation data.
10-year Treasury note TMUBMUSD10Y,
it fell 1.5 basis points to around 1.66% after the CPI. A decline in bond yields tends to make gold more attractive to investors because precious metals do not offer coupons.
Meanwhile, SIK21 Silver May,
SI00,
cutlery added 50 cents, or 2%, to $ 25.37 an ounce, after a 1.8% drop a day ago.
May copper HGK21,
added 0.3% to $ 4.03 a pound. July platinum PLN21,
fell 0.8% to $ 1,164.70 an ounce, while the PAM21 palladium in June,
nailed 0.6% to $ 2,688.50 an ounce.