WASHINGTON: Gold declines after accelerating US inflation lifts odds of the Federal Reserve (Fed) raising interest rates this year.
Bullion was trading around US$4,720 an ounce, after falling 0.4% on Tuesday. The US consumer price index jumped the most since 2023 in April. After adjusting for inflation, wages fell for the first time in three years.
Overnight-indexed swaps now price in more than a 40% chance of a Fed rate hike by year-end, up from almost zero at the end of last month.
US yields rose as investors sought compensation for holding bonds as elevated energy prices kept inflation sticky.
Higher rates are generally negative for gold as it pays no interest. However, the metal has avoided heavy losses despite growing expectations for a rate hike.
This “asymmetric” relationship is not new, said Yuxuan Tang, Asia head of rates and FX strategy at JPMorgan Private Bank.
“We saw the same pattern – very pronounced – starting in 2022. Gold prices stayed resilient when rates spiked. And it tended to rally when rates declined.”
The key driver is demand, particularly strong buying from central banks, she said. “This, in turn, supports our view gold can deliver an uncorrelated return profile.” — Bloomberg
