AGE Daily Gold Update

AGE Daily Gold Update presents a recap on today's action in the precious metals markets. View archives.

6/10/2021: Gold rises after sharply higher CPI

Source: Bill Musgrave, American Gold Exchange

Austin — Gold rose 0.1% to close above $1,894 as sharply higher consumer prices and falling Treasury yields drove demand for the metal as an inflation hedge.

The Consumer Price Index rose 0.6% in May to push 12-month inflation to 5%, the highest level since 2008, when oil prices skyrocketed to $150 per barrel. It was the fourth big monthly gain in a row as the US economy increasingly reopens from pandemic closures.

The biggest drivers of consumer inflation in May were record prices for used cars and trucks, which increased around 25%. Airline tickets, insurance rates, furniture, and energy costs were also much higher.

Despite the surging inflation numbers, benchmark 10-year Treasury yields fell to the lowest level since early March and 30-year yields to the lowest since late February. Analysts attribute the falling yields to the Fed's successful messaging campaign dismissing these bursts of inflation as transitory.

Falling yields are bullish for gold because the lower the opportunity cost for holding instead of bonds as a safe-haven asset and hedge against loss of purchasing power.

The dollar lost ground on the inflation data as traders, taking the Fed at its word, speculated that monetary policy will remain unchanged and interest rates will remain near zero for the foreseeable future. A softer dollar supports gold and other commodities by making them cheaper in other currencies, lifting overseas demand.

Meanwhile, the Fed's balance sheet of bonds purchased through quantitative easing, which continues at $120 billion per month, hit $8 trillion in May for the first time ever. Tantamount to printing money, QE floods the financial system with cheap money to promote lending and spending, undercutting the dollar but supporting gold.

The other precious metals were mostly higher, with silver and palladium adding 0.1% and 0.2%, respectively, while platinum slid 0.5%.

At the Comex close: August gold added 90 cents, to $1,896.40; July silver picked up 3 cents to $28.03; July platinum dropped $5.80 to $1,146; and September palladium rose $4.90 to $2,777.70 an ounce.