Gold and Silver edge lower ahead of consumer price inflation data

Vrasidas Neofytou
Head of Investment Research

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Gold and Silver edge lower ahead of consumer price inflation data

Precious metals edge lower during early Tuesday’s US trading session ahead of important and well anticipated Consumer Price Index-inflation data. Hence, the stronger US dollar and the elevating Treasury yields couple with the growing hopes for global economic recovery are weighing on the prices of safe-haven gold and silver.

Gold and Silver are considered the value hedges against rising inflation rates, economic, health (Covid-19) & political crisis, and US dollar devaluation, likely to result from Biden’s $1.9 trillion fiscal stimulus.

However, investors turned their back to the precious metals, rotating into the safety of bonds and greenback, which is the primary catalyst taking off gold and silver from their recent record highs of $2.070/oz and $30/oz, respectively.


Market Reaction:

Gold price, Daily chart

Sport Gold price falls to $1.725/oz, down -0.50%, while Silver breaks below $25/oz mark, Palladium trades near $2.700/oz, and Platinum slips near $1.170/oz.

Silver price, Daily chart


Consumer Price Index (CPI):

The well-anticipated inflation numbers-Consumer Price Index report is due before US Tuesday’s opening bell.

The CFI- Consumer Price Index measures changes in the price level of a weighted average market basket of consumer goods and services purchased by households.

According to Bloomberg, March’s retail CPI inflation has risen to 5.5% in the US, as petroleum and transportation costs increased alongside some categories within the food basket.

The market participants expect higher inflation numbers (maybe above 2%) ahead as the massive US President Biden’s 1.9t fiscal stimulus, coupled with the reduction in virus risk due to mass vaccination, which will lead to higher consumer spending and cost prices (inflation).


Elevating Treasury yields and US dollar weigh on metals:

With inflation rates moving higher, the 10-year Treasury yields climbed as high as 1.78% at mid-March, while the 30-year Treasury yields climbed near 2.50%. However, yields retreated and stabilized slightly lower after Federal Reserve Chairman Jerome Powell reiterated the Fed’s commitment to maintaining loose monetary policy until inflation and employment rates meet their targets.

Both bond yields and greenback have been advancing since the start of the year on the back of the faster-than-expected economic recovery in the United States after the pandemic. The market turnaround was driven by the unprecedented fiscal and monetary policies from the Federal Reserve and White House, the improved employment rates, and the successful vaccination rollout.

Precious metals are denominated at US dollars, making them more expensive for buyers with foreign currencies in periods when the greenback and bond yields advancing, and the opposite.

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