James Hyerczyk
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Comex Gold

Gold futures are trading flat to lower on Friday as traders continue to assess the impact of yesterday’s U.S. consumer inflation report on Federal Reserve policy. However, yesterday’s strong rebound following the release of the inflation numbers suggests some investors believe policymakers won’t make a change when they meet on June 15-16.

At 11:00 GMT, August Comex gold futures are trading $1893.80, down $2.60 or -0.14%.

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No one knows for certain what the Fed is going to do at its next meeting, which opens the door to a choppy, two-sided trade over the short-term. Inflation may be coming in a little bit hotter than expectations, but there is evidence that some of the increase is being fueled by prices rises related to the pandemic.

Consumer Inflation Accelerates

Consumer prices for May accelerated at their fastest pace in nearly 13 years as inflation pressures continued to build in the U.S. economy, the Labor Department reported Thursday.

The consumer price index, which represents a basket including food, energy, groceries, housing costs and sales across a spectrum of goods, rose 5% from a year earlier. Economists surveyed by Dow Jones had been expecting a gain of 4.7%.

The reading represented the biggest CPI gain since the 5.3% increase in August 2008, just before the financial crisis sent the U.S. spiraling into the worst recession since the Great Depression.


Fed’s View on Rising Inflation

Fed officials have described the current period of high inflation as transitory, meaning it should be brief or short-lived. They have expected several months of elevated price increases because of pent-up demand and supply chain lags. The comparison to last year’s weak levels – at a time when the economy was mostly shut down – is also a factor.

Thursday’s inflation report showed a jump in prices for things that were severely impacted by the pandemic. Things like hotels, rental cars, used cars, sporting events and restaurants are just getting back to normal with prices returning to pre-pandemic levels. This news supports the Fed’s notion that inflation will level off. However, it’s still a little too early to tell.

The Fed has said it would tolerate inflation running above its 2% target, and it would consider an average range for those increases. That means it has committed to hold off on raising interest rates as soon as it sees inflation risks rising, as it has done in the past.

Daily Forecast

Although traders seem to have taken the inflation data in stride, it may be too early for them to commit in either direction in a big way until they hear what the Fed has too say. Therefore, we’re looking for volatility and a choppy, two-sided trade until the central bank’s June 16 policy announcements.

Our work indicates that $1899.20 is the line in the sand controlling the direction of gold prices.

For a look at all of today’s economic events, check out our economic calendar.
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