Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinGold futures finished unchanged at just under $1,981 as support from falling bond yields was offset by pressure from a mild rebound in the dollar. The metal held firm after yesterday's 1.3% rally lifted the gold price to its highest level in more than five weeks.

Consumer inflation in Britain dropped to 7.9% in June, the lowest level in more than a year and well below May's 8.7%. The core reading, minus food and fuel prices, was even lower at 6.9%. The unexpected drop triggered a sharp decrease in UK government bond yields and the pound as traders speculated that UK interest rates may not be hiked as much as feared.

Benchmark 10-year Treasury yields slid under 3.75% after falling UK inflation reinforced the narrative that disinflation underway and the Fed will soon end this rate-hike cycle. Falling yields typically support gold by decreasing the opportunity cost for holding it instead of bonds as a safe-haven asset.

Gold rallied 1.3% to more than a five-week high yesterday after weak US retail and factory data combined with falling June inflation to raise speculation that the Fed is nearly finished raising borrowing costs.

A Reuters poll released today reinforced this view. All 106 economists surveyed expect the Fed to raise interest rates by another quarter-point when it meets later this month. But a majority also think this hike will be the last one. In addition, 85% of respondents expect a recession to begin this year.

Fed fund futures trading also projects a 100% likelihood of a small July hike, but less than a 22% chance of a second increase later this year. The likelihood of a quarter-point rate cut in January stands at 36%.

The dollar rebounded from a 15-month low, rising 0.3% against major rivals led by the UK pound, which fell sharply on softer inflation. A rising buck is a headwind for gold and other commodities because it makes them pricier in other currencies.

The other precious metals were mixed, with silver rising 0.5% while platinum and palladium dropped 1% and 0.7%, respectively.

At the Comex close: August gold futures was flat at $1,980.80; September silver rose 13 cents to $25.39; October platinum dropped $9.60 to $984.80 and September palladium lost by $9.10 to $1,307.40 an ounce.