US Inflation Confusion Sees Gold Price Sink from 5-Week High
Thursday, 12/12/2024 16:06
GOLD PRICES sank from a 5-week Dollar high in London trade Thursday, dropping 1.6% to halve this week's prior surge as the European Central Bank cut its cash interest rates as expected but new US inflation data raised doubts over the pace of Federal Reserve rate cuts in 2025.
The Swiss National Bank meantime slashed its interest rates by half-a-point in a bid to weaken the Franc after it set an all-time month-average record in November versus the Euro.
Silver erased all of this week's prior 4.3% gains to a 1-month high of $32.33 per Troy ounce, while crude oil and copper prices also fell hard and Western stock markets slipped.
Ahead of today's rate decisions, quotes for London bullion ended Thursday's Asian trade at $2725 per Troy ounce, just 2.3% beneath Halloween's all-time high and surging 7.4% from
mid-November's post-Trump election gold slump.
But after yesterday's US consumer price inflation print for November
sealed the deal on a Fed rate cut of 1/4 point to 4.33% at next week's policy meeting, the price of gold then sank to $2680 as US producer price inflation blew past analyst forecasts, jumping to 3.5% per year when foods and energy are excluded.
That's the fastest pace of core PPI inflation since February 2023.
"Producer prices and inflation [more broadly] are on an extended and bumpy journey to the Fed's goal" of 2.0% per year, Yahoo Finance quotes one analyst.
"We don't expect it to persuade the Fed to skip another cut at next week's meeting," agrees another analyst, but "the sticky nature" of consumer price inflation "is a little disconcerting."
Three-in-4 bets on January's Fed decision – due a week after Trump's reinauguration as President – now see no change from the 4.33% rate universally expected to be set at next week's meeting.
Yet more than 2-in-3 bets on the Fed's March decision then see it slashing rates by half-a-point or more.
Washington's borrowing costs in the bond market rose to the highest in 2 weeks on 10-year US Treasury debt, trading 0.4 percentage points higher from last New Year's Eve at 4.31% per annum.
German Bund and French OATS yields also hit 2-week highs despite the ECB cutting its overnight deposit rate to 3.0% per annum as the 20-nation currency union's economic growth continues to run below 1% per year.
"We're not done on getting inflation to target," said ECB President Christine Lagarde in her
post-decision press conference in Frankfurt, also lamenting the "self-inflicted damage" of France and Germany's current political upheavals – as well as the lack of government budget clarity across the European Union – while warning that Trump's promised trade tariffs on imports to the USA will prove "probably net inflationary."
"Trump's second term may provide a boost to the local economy but could equally elicit a fair degree of nervousness for investors around the world," says a note from the mining industry's World Gold Council.
Bullion prices for French, German, Italian and Spanish investors this morning touched €2594 per Troy ounce, less than 0.5% below
late-November's record Euro gold high, while gold in UK Pounds peaked at £2135, some 1.5% off its late-November top.
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