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Metals Stocks: Gold prices shake off losses to finish higher after U.S. June inflation number

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Gold prices on Wednesday shook off losses from the hotter-than-expected inflation data to turn higher, buoyed by a pullback in the U.S. dollar.

The yellow metal had settled higher for a second session on Tuesday.

Price action

Gold futures
GC00,
+0.74%

GCQ22,
+0.74%

for August delivery rose $11.10, or 0.7%, to $1,736.10 an ounce, after dropping to as low as $1,704.50. Before the turn higher, prices based on the most-active contract were on track for the lowest finish since March 31, 2021, FactSet data show.

Silver futures
SIU22,
+1.22%

for September delivery added 20.2 cents, or 1.1%, to $19.16 an ounce after settling Tuesday at the lowest since July 2020.

Platinum futures
PLV22,
+1.46%

for October delivery rose $7.40, or 0.9%, to $835.50 per ounce.

Palladium futures
PAU22,
-2.54%

for September delivery fell $58.10, or 2.9%, to $1,957.50 an ounce.

Copper futures
HGU22,
+1.13%

for September delivery climbed 1.4 cents, or 0.4%, to $3.3015 per pound.

Analyst reaction

Just as precious metals analysts had anticipated, gold prices slumped immediately after the U.S. June consumer-price index came in hotter than expected, but somewhat unexpectedly gave up those losses to turn higher.

The headline inflation number for last month showed prices rose at an annualized rate of 9.1%, exceeding expectations of an 8.8% increase. Futures markets are now pricing in a more than 40% chance of a 100 basis point interest rate hike from the Federal Reserve later this month.

Odds for further sharp rate hikes sent the dollar higher, said Fawad Razaqzada, market analyst at City Index and FOREX.com, but the precious metal then “staged a sharp recovery,” coinciding with the dollar also coming under pressure.

“The post-CPI reaction clearly suggests that investors are thinking that the big inflation readings will hurt the economy so badly that not only will the Fed stop hiking rates soon, but will go in reverse in as early as Q1,” said Razaqzada.

The ICE U.S. Dollar Index
DXY,
-0.33%
,
a gauge of the dollar’s strength against a basket of main currencies, turned lower, edging down by 0.3%, while the 10-year Treasury yield
TMUBMUSD10Y,
2.953%

gave up earlier gains to move down by 1.3 basis points at 2.946%.

That has raised questions over whether gold is “becoming an attractive investment again given the rising expectations for interest rate cuts for the start of 2023,” Razaqzada said. “Are investors going to start building long positions on gold amid increased haven demand?”

“Ultimately, the dollar has to stop rising before we see gold make a meaningful comeback,” he said. 

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