Gold prices ticked higher on Tuesday after inflation data showed US consumer prices rose in March for the fourth straight month and inflation hit its highest level in 2.5 years.
Gold for June delivery climbed $8.50, or half a percent, to $1,741.20 an ounce, and spot gold at time of writing was trading at an even $1,745/oz, reversing a year-to-date downward trend. Since January, the yellow metal has fallen 8.7% due to a combination of factors including a stronger US dollar, higher US treasury yields and better macroeconomic data, as covid-19 inoculation programs gather pace.
However, the blistering speed of economic recovery in the US — economists are predicting annual GDP growth of 6.5%, versus a 2020 contraction of 3.5% — is stoking fears of inflation.
Unwilling to see their gains eroded in the near future by a loss of purchasing power (inflation increases the prices of goods and services over time, effectively decreasing the amount you can buy with a dollar in future), investors are dumping bonds and piling into riskier asset classes like stocks, causing bond prices to fall and yields to climb. The interest rate on the benchmark 10-year Treasury has been steadily increasing and now sits at 1.69%, after bumping along at between 0.5% and 1% for most of 2020 as investors rotated funds into Treasuries (and gold) as protection against pandemic-related market turbulence.
Consumer prices rise
The US Federal Reserve, whose dual mandate is to keep inflation in the “Goldilocks zone” of around 2% and to control unemployment, has been downplaying inflation, telling the public that even if prices rise, it will only be temporary.
In a recent interview with ’60 Minutes’, Fed Chair Jerome Powell said the Fed won’t raise interest rates based on short-term jumps in inflation readings.