Gold futures surged on Tuesday after the US annual inflation rate continued to come down, leaving the financial markets to expect the Federal Reserve will leave interest rates unchanged on Wednesday. The yellow metal has been gradually building momentum, particularly as the US dollar weakens. Can gold retest $2,000 again?
July gold futures advanced $9.00, or 0.51%, to $1,977.80 per ounce at 13:18 GMT on Tuesday on the COMEX division of the New York Mercantile Exchange. Gold prices are flat this week, but they are still up more than 8% year-to-date.
Silver, the sister commodity to gold, continued to firm above $24. July silver futures rallied $0.201, or 0.84%, to $24.26 an ounce. The white metal is up more than 2% in the last week, turning positive on the year, with a 0.33% year-to-date increase.
According to the Bureau of Labor Statistics (BLS), the US annual inflation rate slowed to 4% in May, down from 4.9% in April. This also came in below the market estimate of 4.1%. The consumer price index (CPI) edged up 0.1% on a month-over-month basis.
The core CPI eased to 5.3% year-over-year, down from 5.5% in April. The core inflation rate, which strips the volatile food and energy components, rose 0.4% for the sixth straight month on a monthly basis.
Services inflation remained near a 40-year high but slowed to 6.3%.
The leading stock market indexes were subdued in early-morning trading as investors had likely penciled in another lower CPI print. In addition, the lower-than-expected CPI headline figure will likely force the Federal Reserve to hit the pause button on interest rates.
The futures market is penciling in the US central bank to leave the benchmark fed funds rate unchanged at a range of 5.00% and 5.25%.
US Treasury yields slumped on Tuesday, with the benchmark ten-year yield down nearly five basis points to close to 3.72%. The one-month bill dropped 5.2 basis points to 5.133%, while the 30-year bond fell 2.5 basis points to 3.881%.
Gold is typically sensitive to movements in interest rates because it can impact the opportunity cost of holding non-yielding bullion.
Meanwhile, the greenback tanked after the CPI figures, with the US Dollar Index (DXY) sliding 0.5% to 103.14, from an opening of 103.65. A weaker buck is good for dollar-denominated commodities because it makes it cheaper for foreign investors to purchase.
In other metal markets, July copper futures rallied $0.082, or 2.19%, to $3.834 per pound. July platinum futures slipped $3.50, or 0.35%, to $991.80 an ounce. July palladium futures advanced $31.40, or 2.34%, to $1,372.50 per ounce.