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Gold and silver prices tumbled on Tuesday, reversing earlier gains, as U.S. inflation for August came in surprisingly strong, causing the dollar to rise and short-term Treasury yields to reach fresh 14-year highs.
Price action
-
Gold futures
GCZ22,
-1.54% GC00,
-1.54%
for December delivery fell $24.70, or 1.4%, to $1,715.90 per ounce on Comex. -
Silver futures
SIU22,
-1.57%
for December delivery shed 29.5 cents, or 1.5%, to $19.565 per ounce. -
December copper
HGZ22,
-1.56%
traded at $3.566 a pound, down 4.45 cents, or 1.2%. -
October platinum
PLV22,
-2.39%
lost 0.8% to $896.80 an ounce, while December palladium
PAZ22,
-7.21%
dropped 6.2% to $2,133.50 an ounce.
What analysts say
Dollar strength is directly related to the CPI print and “that’s dragging on gold markets,” Andrew Schrage, chief executive officer at Money Crashers, told MarketWatch.
The U.S. consumer price index rose by 0.1% in August. Economists polled by The Wall Street Journal had forecast a 0.1% drop in the CPI.
What’s worse, the so-called core rate of inflation, which omits food and energy, rose by a sharp 0.6%, higher than the 0.3% rise economists’ who participated in the WSJ survey had expected.
“It remains to be seen whether gold can shake off that correlation and resume its longer-term role as an inflation hedge,” he said. “But for now, traders seem confident that inflation won’t spiral out of control — just that the Fed will need to act more aggressively and perhaps for longer than expected to tamp it down.” Actions to tame inflation would likely include higher interest rates, and higher interest rates can strengthen the dollar and weaken demand for dollar-denominated commodities, such as oil.
That’s “not great news for gold in the near term, but as this CPI report reminds us, inflation has proven difficult to predict, so conditions can (and may) change quickly,” said Schrage.
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