Gold futures plummeted on Tuesday following the higher-than-expected August inflation report. Despite gold being a safe-haven amid an inflationary environment, the financial markets’ expectations of additional tightening weighed on metal commodities. Will gold eye $1,700 by the end of the trading week?
October gold futures plunged $26.30, or 1.51%, to $1,714.40 per ounce at 16:51 GMT on Tuesday on the COMEX division of the New York Mercantile Exchange. Gold prices added to their year-to-date loss of more than 6.3%.
Silver, the sister commodity to gold, halved its meteoric gains on Monday. November silver futures declined $0.435, or 2.19%, to $19.425 an ounce. The white metal is still up about 8% over the last week, but silver prices are down about 17% so far this year.
The August consumer price index (CPI) report was the key data point on Tuesday. The annual inflation rate eased to 8.3%, higher than the market estimate of 8.1%. The core inflation rate, which removes the volatile energy and food sectors, surged to 6.3%. The CPI rose 0.1% month-over-month, while the core CPI jumped 0.6%.
As FX Daily Report noted:
“While the energy index eased to 23.8% last month, nearly everything was up across the board. The food index surged 11.4%, new vehicles climbed 10.1%, used cars and trucks eased to 7.8%, apparel surged 5.1%, and shelter jumped 6.2%. Medical care commodities and services rose 4.1% and 5.6%, respectively. Transportation services exploded 11.3%.”
The news tanked the financial markets, with the leading benchmark indexes crashing across the board. The Dow Jones Industrial Average lost nearly 900 points, the S&P 500 lost 125 points, and the Nasdaq Composite Index declined close to 500 points.
Investors are concerned that the latest figures will force the Federal Reserve to perhaps supersize its interest-rate hikes. Next week, the Federal Open Market Committee (FOMC) will hold its September policy meeting, with the expectation that the central bank will pull the trigger on a 75-basis-point rate hike.
This forecast lifted the greenback and US Treasury yields.
The US Dollar Index (DXY), which gauged the greenback against a basket of currencies, surged 1.22% to 109.66, from an opening of 108.33. The buck is up more than 14% year-to-date.
A stronger buck is bad for commodities priced in dollars because it makes it more expensive for foreign investors to purchase.
The bond market was green across the board, with the benchmark ten-year yield up 6.9 basis points to 3.431%. The one-year bill surged 23.3 basis points to 3.906%, while the 30-year bond was flat at 3.51%. The recession-indicating spread between the two- and ten-year yield widened to -35 basis points.
Gold is sensitive in a rising-rate environment because it lifts the opportunity cost of holding non-yielding bullion.
In other metal markets, October copper futures slumped $0.0565, or 1.58%, to $3.5535 per pound. October platinum futures fell $22.20, or 2.46%, to $882.00 an ounce. October palladium futures plummeted $175.10, or 7.7%, to $2,099.50 per ounce.