Gold futures turned higher on Tuesday as a report on the cost of living in the U.S. rose in August at the slowest pace in seven months.

The consumer-price index climbed 0.3% in August,  compared to a rise of 0.5% in July, the government said Tuesday. Economists polled by the Wall Street Journal estimated the cost of living, as measured by CPI, rose 0.4% in August.

The rate of inflation over the past year, meanwhile, slipped to 5.3% in August from 5.4%, marking the first slowdown since last October. Economists had predicted inflation would likely exceed 4% for all of 2021, putting it well above the Federal Reserve’s 2% target.

Precious metals are seen as a hedge against inflation and increasing price pressures, which a number of members of the Federal Reserve have consistently described as transitory.

However, “what appears to have excited investors was the core inflation,” said Colin Cieszynski, chief market strategist at SIA Wealth Management, in a note. The core rate fell for a second month in a row to 4% in the August year from 4.3% in the July year.

That came in below Wall Street expectations, “which may ease some of the pressure on the Fed to start tapering,” said Cieszynski.

Against that backdrop, December gold
GCZ21,
+0.85%

GC00,
+0.85%

erased a double-digit point decline to trade $5.60, or 0.3%, to reach $1,800 an ounce, following a 0.1% rise on Monday. December gold hit an intraday high on Tuesday at $1,802.10 an ounce.

In addition to CPI, the Fed next week will likely use inputs, including the CPI report, to determine its plans for scaling back COVID-era bond purchases which have been in force to help provide liquidity to markets that were gummed up during the worst of the pandemic-inspired selling in the spring of 2020.

“The yellow metal will remain sensitive to US economic releases this week, especially today’s inflation reading, with any delay to tapering being a positive catalyst in the coming weeks,” wrote Craig Erlam, senior market analyst at Oanda Corp., in a research note.

Many members of the rate-setting Federal Open Market Committee, including Chairman Jerome Powell, have recently said that the central bank should announce tapering of its monthly purchases of $120 billion in Treasurys and mortgage-backed securities by the end of the year if the economy continues to recover from COVID.

December silver
SIZ21,
+0.27%

 
SI00,
+0.27%

was trading down by 0.2% at $23.75 an ounce, reversing a sharp loss from earlier in the session, following a 0.4% decline on Monday.

Palladium plunge

Meanwhile, palladium prices have been under heavy selling pressure on the session and over the past week. The white metal is mainly used in catalytic converters in gasoline-powered vehicles to help control emissions.

However, prices of palladium have been on the rise amid expectations for growth in photovoltaic sector and electric vehicle market where the metal, along with platinum, also is used.

The World Platinum Investment Council said that it expects higher costs of palladium, used in vehicle pollution-control devices, to spur a gradual switch by auto makers to using more platinum in gasoline-powered cars and trucks.

The WPIC is also predicting a modest 2021 surplus in palladium amid heightened mine output and the reduction of plant closure backlogs, according to Peter Grant in Zaner’s latest Grant on Gold newsletter. “If confirmed, it would be the first [palladium] surplus since 2018,” he said.

Some analysts speculate that China’s attempt to curb price surges of a number of commodities and some slowdown in the electric vehicle market, spurred by chip shortages, is weighing on the asset’s price.

On Tuesday, palladium prices were headed for a six-session losing streak, which would match the longest streak of declines since a period ended March 13 of 2020, FactSet data show. The declines have brought palladium down to around its lowest price since July of 2020.

At last check Tuesday morning, December palladium
PA00,
-5.86%

PAZ21,
-5.86%

was trading $143.30, or 6.9%, lower, at $1,936.50 an ounce. Palladium is down around 35% from its early May peak.

The most-active October platinum contract
PLV21,
-2.16%

lost $24, or 2.5%, to $933.50 an ounce.

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