Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinGold fell 1.3% to close under $1,718 after an unexpected increase in consumer prices lifted the dollar and Treasury yields, undercutting alternative stores of value.

The Consumer Price Index rose 0.1% in August, defying forecasts that it would fall, as higher food and rent costs offset lower gasoline prices. The so-called core rate, excluding food and energy, jumped 0.6%, doubling July's increase and causing economist to worry that inflation is becoming more deeply entrenched.

The hot CPI print dismissed any residual hope the Fed might slow its aggressive course of monetary tightening when it meets next week. Fed fund futures traders now see virtually no chance of a rate hike smaller than 75 basis points, with the likelihood of a full 1% now at 34%, up from zero yesterday.

Wall Street crumbled on the prospect of much higher interest rates and the growing worry that the Fed will force the economy into recession to control stubborn inflation. The Dow fell 4% for its worst day since June 2020. The S&P 500 lost 4.3% and the Nasdaq plunged 5.3%.

Benchmark 10-year Treasury yields climbed back above 3.4% on the rate view. Meanwhile, 2-year yields soared above 3.75%, the highest in more than a decade, to widen the rate-curve inversion to 33 basis points. An inverted yield curve typically foreshadows recession.

While gold is often sought as a hedge against inflation, it is pressured by higher yields, which increase the opportunity for holding it instead of bonds as a safe-haven asset.

The dollar was the biggest benefactor of the surprisingly hot CPI, jumping 1.5% against major rivals as investors went to cash. A rising dollar weighs on gold and other commodities by making them more expensive in other currencies, reducing overseas demand.

The other precious metals were sharply lower, with silver sliding 1.9% while platinum dropped 2.3% and palladium tumbled 7.2%.

At the Comex close: December gold lost $23.20 to $1,717.40; December silver slid 37 cents to $19.49; October platinum shed $20.50 to $883.70; and December palladium surrendered $163.50, to $2,111.10 an ounce.