PGS Market Update: U.S. Inflation Report and Precious Metals

Gold Reacts to U.S. Inflation Report

Gold prices fluctuate following the release of a crucial U.S. inflation report, with investors assessing its potential impact on the Federal Reserve’s future interest rate decisions.

Inflation Surges in August

In August, inflation experienced its most significant monthly increase of 2023, as indicated by the Consumer Price Index (CPI). It rose by 0.6% for the month, marking a 3.7% year-over-year increase, according to the U.S. Department of Labor. These figures exceeded the earlier forecast of 0.6% and 3.6%, respectively. However, when excluding volatile food and energy prices, the core CPI still showed a substantial increase of 0.3% for the month and 4.3% year-on-year, surpassing estimates of 0.2% and 4.3%. Federal Reserve officials place greater emphasis on core data as it provides a more reliable indicator of long-term inflation trends.

Gold’s Reaction

Spot Gold initially dipped by $4 an ounce to $1909 in response to this news but later recovered, reaching $1914, and continues to fluctuate.

Impact on Federal Reserve Plans

The upcoming U.S. consumer price index report for August is expected to show a third consecutive month of subdued inflation. Of greater significance is “core inflation,” which excludes volatile food and energy costs. Any minor increase in core inflation could potentially disrupt the Federal Reserve’s plans to continue its cycle of interest rate hikes, a development typically seen as bearish for gold.

Gold Futures Performance

Front-month gold futures fell by 0.6% on Tuesday, settling at $1,935.10 an ounce on Comex, with the December contract also retreating by 0.4% in the first two days of the week. Gold experienced a 2.2% drop in August after a 4.1% rise in July and a 2.7% decline in June. Year-to-date, gold has seen a 6% increase. Currently, the December contract is up by $1.20 (+0.06%) an ounce, reaching $1936.30, while the PGS spot price stands at $1913.00.

Fed Rate Hike Expectations

Since March 2022, the Fed has raised rates by 5.25 percentage points in an attempt to control inflation. As of now, about 97% of investors tracked by the CME FedWatch Tool are anticipating that the Fed will maintain its federal funds rate at the current range of 5.25% to 5.50% this month. Only 3% expect a further 25 basis point increase. While most still anticipate the Fed to hold rates in November and December, the margins are narrower.

Impact on Gold

A pause in the cycle of interest rate hikes is viewed as bullish for gold, which tends to face pressure when interest rates rise. The central bank closely monitors inflation statistics and labor market data when making its future decisions.

Other Key Events

Investors are also keeping an eye on the European Central Bank, set to announce its monetary policy decision on Thursday. High inflation could potentially lead to the ECB’s 10th consecutive interest rate hike.

Additional reports on U.S. retail sales, the producer price index, and weekly initial jobless claims are scheduled for release on Thursday, with U.S. industrial production, University of Michigan consumer sentiment, and the Empire manufacturing index following on Friday.

Silver, Palladium, and Platinum Performance

Front-month silver futures inched up by less than 0.1% on Tuesday, settling at $23.40 an ounce on Comex, with the December contract gaining 1% in the first two days of the week. Silver experienced a 0.6% decline in August after an 8.5% rise in July and a 2.4% drop in June. Year-to-date, silver is down by 2.7%. Currently, the December contract is down by $0.167 (-0.71%) an ounce, reaching $23.235, while the PGS spot price is $22.92.

Spot palladium surged by 2% on Tuesday, reaching $1,259.00 an ounce and posting a 3.8% gain for the week. Palladium declined by 5.3% in the previous month after a 3.6% rise in July and a 9.5% drop in June. Year-to-date, palladium has fallen by 30%. The current PGS spot price is slightly down by $0.80 an ounce, reaching $1261.50.

Spot platinum showed a 1.3% gain on Tuesday, reaching $917.20 an ounce and posting a 1.9% gain for the week. Platinum advanced by 1.7% in August after a 5.2% gain in July and a 9.3% drop in June. Year-to-date, platinum is down by 14%. The PGS spot price is currently down by $10.80 an ounce, reaching $906.00.