Global X : Gold fell as bond yields were volatile amid the a 40-year high in inflation, with the latest US CPI print coming in at 8.6% in May and the job reports.
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Rohan Reddy Director of Research Global X ETFs
Gold has also been slumping in the past few months amid high inflation prints, falling from a peak of $2050/oz to ~$1830/oz today.
US Jobless Claims surprised the markets yesterday, jumping 27k, the largest in almost a year, to 229k; today, US data showed consumer prices rose last month by 1.0%, and 8.6% YoY, a 40-year high. CPI print came in above consensus expectations at 8.6% YoY vs 8.3% estimated, mainly driven by food, energy, and rental prices, a sign that inflation might not have peaked just yet.
The latest data releases are a double-edged sword for gold based on its appeal as both a safe haven, but also as a less appealing pocket of the market to investors given its non-yielding nature in a rising rate environment. On the one hand, the historically strong correlation between gold returns and inflation makes the base metal one of the preferred options for hedging inflation. On the other hand, this higher inflation increases the probability of the Fed skewing even more hawkish, which could translate into pressure on real yields and weigh on gold prices. Persistent tight labor markets, with just 3.6% unemployment rates in the US and 3.7% in the UK, can continue adding inflation pressures and make the Fed even more hawkish. Inflation deceleration would likely require a substantial slowdown in the labor market and a weaker consumer, along with a decline in pent-up demand.
If the jump in Jobless Claims lingers, we could witness the first sign of a softening job market. However, claims data can be volatile around holidays, and labor markets seem still tight according to last week’s jobs report that showed robust growth of 390k in May (beating a consensus of 318k). Although wage growth moderated and the unemployment rate held steady at 3.6% (while it was expected to fall to 3.5%), giving hope that the economy could achieve a soft landing.
A soft landing, (slowing economic growth to an acceptable degree), could put bearish pressure on gold prices behind persistent expectations of an aggressive hiking cycle and somewhat relieved economic growth worries.
Source : ETFWorld.co.uk
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