Metals Stocks: Gold sinks to fresh 9-month low after June inflation number

Gold prices tumbled on Wednesday, with prices on track to settle at their lowest in more than 15 months after the release of hotter-than-expected U.S. inflation data.

The yellow metal had settled higher for a second session on Tuesday.

Price action
Gold futures
GC00,
+0.01%

GCQ22,
+0.01%
for August delivery fell $2.90, or 0.2%, to $1,721.90 an ounce, after dropping to as low as $1,704.50. A settlement around the current level would be the lowest for a most-active contract since March 31, 2021, FactSet data show.

Silver futures
SIU22,
-0.12%
for September delivery shed 10.3 cents, or 0.5%, to $18.855 an ounce, holding ground at their lowest since July 2020.

Platinum futures
PLV22,
-0.93%
for October delivery lost $7.60, or 0.9%, to $820.50 per ounce.

Palladium futures
PAU22,
-2.58%
for September delivery fell $53.60, or 2.7%, to $1,962 an ounce.

Copper futures
HGU22,
-1.81%
for September delivery fell 6 cents, or 1.8%, to $3.228 per pound.

Analyst reaction Just as precious metals analysts had anticipated, gold prices slumped after the U.S. June consumer-price index came in hotter than expected. The headline inflation number for last month showed prices rose at an annualized rate of 9.1%, exceeding expectations of an 8.8% increase.

Futures markets are now pricing in a more than 40% chance of a 100 basis point interest rate hike from the Federal Reserve later this month.

“The U.S. data point of the week, if not the month, saw Wednesday morning’s consumer price index report for June come in very hot,” said Jim Wyckoff, senior analyst at Kitco.com.

Meanwhile, Treasury yields surged on the news, and the U.S. dollar strengthened. Analysts blamed higher yields and the stronger dollar for luring investors away from gold.

“ “The prospects of further, sharp, rate increase in the near term is what is holding gold investors back right now.” ”

— Fawad Razaqzada, City Index and FOREX.com

“It is very difficult to say at what point gold might resume its role as a safe haven again,” Fawad Razaqzada, market analyst at City Index and FOREX.com, told MarketWatch. “The prospects of further, sharp, rate increase in the near term is what is holding gold investors back right now.”

“As we saw with the Bank of Canada, they surprised with a bigger hike today. The Fed could follow suit given the further acceleration in inflation,” he said. “Ultimately, the dollar has to stop rising before we see gold make a meaningful comeback.” 

Some strategists warned that gold could soon break below $1,700 per ounce after the strong inflation number.

“Another bout of U.S. dollar strength could well see $1,675.00 fail, setting up another capitulation trade,” said Jeffrey Halley, senior market analyst for Asia-Pacific at OANDA.

The ICE U.S. Dollar Index
DXY,
+0.15%,
a gauge of the dollar’s strength against a basket of main currencies, edged up by 0.1%, while the 10-year Treasury yield
TMUBMUSD10Y,
2.958%
was up 4 basis points at 2.999%.

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