Gold futures rose higher on Tuesday after data showed that US consumer prices rose for the fourth month in a row in March, hitting an all-time high in 2½ years. Bullion is often seen as a hedge against inflation.
The consumer price index jumped 0.6% in March, the government said on Tuesday, led by rising oil costs. Economists polled by Dow Jones and The Wall Street Journal predicted a 0.5% increase in CPI. The 12-month inflation rate rose to 2.6% in March from 1.7%.
The reading “comes slightly above expectations, an indication that the US economy is rising a little more than expected,” said Jason Teed, co-portfolio manager of Gold Bullion Strategy Fund QGLDX,
told MarketWatch.
He pointed out that a large part of the inflationary pressure was due to rising petrol prices and that core inflation was more subdued. “These changes are expected to be largely temporary by economists leading to an inappropriate attitude” from the Federal Reserve, says Teed, who is also director of research at Flexible Plan Investments Ltd.
Overall, “gold is responding positively to the news, but short-term price movements in the metal are not an indication of long-term trends,” he said.
June gold GC00,
GCM21,
rose $ 8.50, or 0.5%, to $ 1,741.20 per ounce, a day after the precious metal recorded the lowest finish for a most active contract since April 5, FactSet data show.
“Inflation is likely to increase further and the numbers for the next few months may look abnormally large as the base effects of the 2020 closures skew the data,” wrote Fawad Razaqzada, market analyst at ThinkMarkets, referring to distortions in the monthly inflation rate the result of abnormally high or low levels during the year-ago period.
“The Fed expects inflation to fall after a temporary acceleration. However, the most important risk is if their assumption turns out to be wrong, and price pressure remains high. “If consumers’ inflation expectations rise, it could in fact amount to the real rise in price levels,” he said.
The move to gold in the session so far also comes because the yields of bonds, which compete against gold for the demand for refuges, have moved lower to the inflation data.
The ten-year treasury note TMUBMUSD10Y,
was 1.5 basis points lower at about 1.66% after CPI. A decline in bond yields tends to make gold more investors because precious metals do not offer a coupon.
Meanwhile, silver SIK21,
SI00,
Shed added 50 cents, or 2%, to $ 25.37 an ounce, after falling 1.8% a day ago.
Mag copper HGK21,
added 0.3% to $ 4.03 per pound. Platinum platinum Julie,
decreased by 0.8% to $ 1,164.70 ounces, while Palladium PAM21 in June,
by 0.6% to $ 2,688.50 per ounce.