Gold prices (XAU/USD) experienced a sharp decline, plummeting from recent highs of $2,365 during Wednesday’s early New York session, following the release of a persistently elevated Consumer Price Index (CPI) report by the United States Bureau of Labor Statistics (BLS). Inflation metrics showed steady growth across key parameters, with annual headline inflation surging to 3.5%, surpassing expectations of 3.4% and the previous reading of 3.2%. Economists had foreseen sustained inflationary pressures due to elevated oil prices, rising rentals, increased insurance costs, and portfolio management fees.
The robust CPI data prompted traders to revise their expectations regarding the Federal Reserve (Fed) potentially initiating interest rate reductions starting from the September meeting. This shift in sentiment favors interest-bearing assets like US bonds and the US Dollar. Consequently, 10-year US Treasury yields surged to 4.5%, while the US Dollar Index (DXY), reflecting the Dollar’s strength against six major currencies, rallied to 105.00. The unexpectedly high inflation figures are anticipated to heighten uncertainty surrounding the number of anticipated rate cuts by the Fed, which policymakers had previously projected three times this year.
Traditionally, the Fed’s maintenance of higher interest rates over the long term exerts downward pressure on non-yielding assets such as Gold, as it increases the cost of investing in them. However, despite this trend, Gold has displayed an anomaly in recent weeks, with demand remaining robust even as traders scaled back expectations of Fed rate cuts for the June and July meetings.
