Gold approaches record highs as fall in CPI gives Fed ‘ammo’ to support rate cuts

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Gold futures climbed sharply on Thursday, with prices trading close to fresh record highs, as traders viewed a report that showed cooling inflation as “ammo” for the Federal Reserve to use if it cuts interest rates this year.

The surprise to the downside on U.S. inflation numbers is a “big sentiment boost for those waiting for rate cuts sooner than later,” said Peter Spina, founder and president of investor website

The cost of consumer goods and services fell in June by 0.1%, marking the first decline since the height of the COVID-19 pandemic in May 2020, the government reported Thursday.

On Comex, gold for August delivery

climbed $43.20, or 1.8%, to $2,422.90 an ounce after trading as high as $2,430.40. Based on the most-active contracts, prices trade not far from the record-high intraday price of $2,454 and the all-time settlement high of $2,438.50, both reached on May 20, according to Dow Jones Market Data.

Silver prices also rallied, with September silver futures

up 67.6 cents, or 2.2%, at $31.69 an ounce, on track for the highest finish since May 29.

The Federal Open Market Committee “now has more ammo on its side to support rate cuts this year and sooner,” with September now looking more likely as the time for the first rate cut, Spina told MarketWatch.

“Rate cuts are bullish for precious metals since the competition for returns from holding dollars is diminished,” he said, adding that the market is now expecting two rate cuts this year.

Against that backdrop, the U.S. dollar weakened and Treasury yields declined, providing support for dollar-denominated gold. The ICE U.S. Dollar index
was down 0.7% at 104.34, while the yield on the 10-year Treasury
fell to 4.178% from 4.280% on Wednesday.

“Yields falling helps to undermine the U.S. dollar’s value and adds additional ammo to the U.S. dollar gold price,” said Spina.

The CPI news, combined with the recent dovish comments from Fed Chairman Jerome Powell, are “giving renewed support to gold prices which have been consolidating after a very aggressive move higher,” he said.

Spina said he had been expecting gold prices to launch higher by the end of the quarter to fresh record highs, but “now the window for this next move higher in gold appears to be adjusting by a few months.”

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