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Metals Stocks: Gold futures end at one-month high as dollar, bond yields fall after inflation report

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Gold futures gained 2% on Wednesday, prompting prices to post their highest finish in about a month as the U.S. dollar and bond yields weakened following a report on inflation in September.

Prices for the precious metal then moved slightly lower in electronic trading Wednesday afternoon, shortly after the release of minutes from the Federal Reserve’s Sept. 21-22 monetary policy meeting.

The U.S. consumer price index report showed inflation pressures continuing to build and “gold, as a hard currency, has historically been seen by investors as a hedge against inflation,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

“As signs that inflation is likely not transient have emerged over the last few days between commodity price rallies…increasing wage inflation and price inflation, gold’s role as an inflation hedge has moved back to the forefront,” he told MarketWatch. Weakness in the U.S. dollar also helped to put a tailwind behind gold, Cieszynski said.

The September U.S.consumer-price index reading rose 0.4%, versus expectations for 0.3% on the month. Excluding the volatile food and energy components, the CPI climbed 0.2% after edging up 0.1% in August, the smallest gain in six months.

In the 12 months through September, the CPI increased 5.4% after advancing 5.3% year-over-year in August and annualized core CPI rose 4.0% after increasing 4.0% in August.

“The acceleration in total consumer inflation in this CPI report makes Fed action to curtail inflation both imperative and imminent,” said Jason Schenker, president of Prestige Economics, in emailed commentary. “We continue to believe that the Fed is likely to announce a planned reduction” in quantitative easing (QE) on Nov. 3. He also said he expects the Fed to raise interest rates next year.

QE tends to help support gold prices, but the Fed has been widely expected to announce next month that it will begin tapering its monthly bond purchases.

Against that backdrop, December gold
GC00,
+1.92%

GCZ21,
+1.92%

GC00,
+1.92%

rose $35.40, or 2%, to settle at $1,794.70 an ounce, following a 0.2% gain on Tuesday. Prices for the most-active contract marked their highest settlement since Sept. 15, FactSet data show.

Meanwhile, silver for December delivery
SIZ21,
+2.76%

 
SI00,
+2.76%

climbed 66 cents, or 2.9%, to settle at $23.17 an ounce on Wednesday, following a 0.7% decline a day ago. Prices also ended at their highest since Sept. 15.

“Gold has risen mainly due to expectations that inflation will continue to rise in the fourth quarter,” said Chintan Karnani, director of research at Insignia Consultants.

“Central banks’ tolerance on hyper inflation will be tested this quarter,” he said, adding that there was a technical breakout on $1,781 on gold, accompanied by a short covering.

In electronic trading shortly after the Fed minutes’ release Wednesday, gold prices were down a bit at $1,793.50.

The Fed’s minutes of the September meeting were released about a half an hour after gold futures settled on Comex and confirmed that the central bank officials discussed a plan to reduce the pace of asset purchases by $15 billion per month.

The Fed’s No. 2 Richard Clarida had already signaled earlier this week that the economic recovery from COVID-19 had essentially met the criteria necessary to announce a reduction of monthly asset-purchases of Treasurys and mortgage-backed securities that have been in force since June of 2020.

The Fed minutes will be key for Thursday’s trading, said Karnani.

Until Wednesday gold had been mostly registering small losses and trading in a relatively tight range between $1,750 and around $1,770 an ounce. Gold bulls have noted that the precious metal has managed to maintain relative strength despite a stronger U.S. dollar and a steady climb in benchmark Treasury yields, which can compete against bullion for those investors seeking a perceived haven in uncertain times.

“In the commodity complex, gold has displayed some remarkable resilience in recent sessions, absorbing a stronger dollar and the spike in yields without much trouble,” wrote Marios Hadjikyriacos, senior investment analyst at XM, in a daily note.

In Wednesday dealings, however, the dollar, as gauged by the ICE U.S. Dollar index
DXY,
-0.43%

was down 0.5% at 94.068 and the yield on the 10-year Treasury note
TMUBMUSD10Y,
1.550%

stood at 1.548%, down from 1.579% on Tuesday.

In other Comex trading, December copper
HGZ21,
+4.14%

tacked on 4.4% to $4.516 a pound, the highest finish since July. January platinum
PLF22,
+0.86%

rose 1.2% to $1,024.20 an ounce and December palladium
PAZ21,
+2.96%

settled at $2,106.10 an ounce, up nearly 2.9%.

“There is a large rally in copper and industrial metals…on supply squeeze concerns,” said Karnani.

Market Extra: Stronger-than-expected U.S. inflation data has bond traders weighing the risk of a Fed policy error

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