The latest batch of inflation figures from the US have come in at expected levels. The dollar has slipped to a one-month low and pushed gold and silver higher.
After an unwelcome rise in CPI figures last month, markets were pleased to see a slight fall in inflation for April as forecast. Yearly inflation fell to 3.4% from March’s 3.5%, with the monthly increase at 0.3% versus March’s 0.4%. Core inflation also fell to similar levels of 3.6% y-o-y, and 0.3% monthly.
As has been common this year, markets have reacted quickly and sharply to the latest figures. Hopes that inflation is back on the right track have seen rate cut probabilities tilt forwards to September versus November just a few weeks ago. Markets have been overly optimistic for rate cuts so far in 2024 however, and with inflation only falling slightly, and still a good distance from the Fed’s 2% target, today’s figures are unlikely to have a significant impact on the Fed’s decision.
The renewed hopes for a September cut however have seen the dollar fall, with the US Dollar Index dropping to a one-month low following the release of the figures. This has helped push gold up in USD to an initial peak of $2,385.27 per ounce. Gold has since settled down around $2,370 as markets weigh up the figures, but this still leaves gold up more than 2.5% in the past week.
Silver has also benefited from the weaker dollar, breaking past $29. The last time silver hit $29 just over a month ago, it came very close to reaching the key psychological level of $30. Silver has made some great strides recently and is up nearly 7% in the last week alone, and more than 25% in the past three months.
The weaker dollar has seen the pound strengthen against it, but gold and silver are still seeing gains in GBP. After nearly breaking past £1,900 last Friday, gold slipped back as far as £1,860 this week, but has now recovered to £1,875 and has been steadily climbing since Monday. This afternoon’s boost has helped push silver back above £23 per ounce and it now has last month’s peak of £23.96 in its sights.
Gold and silver have performed exceptionally well considering the current headwinds against it. Interest rates remain high and are unlikely to be cut (in the US at least) for a few months yet, and only then if inflation does continue to fall. Stock markets have been reaching new all-time highs, and conflict in the Middle East has returned to focus on Israel and Gaza rather than the escalation feared with Iran that helped drive gold last month.
Instead, savvy investors are looking at the bigger picture. The Fed are stuck between a rock and a hard place, unable to hike rates higher for fear of pushing the US economy to breaking point, and instead allowing inflation to remain higher for longer. Higher rates continue to fuel unsustainable debt levels however, and cracks are appearing in the US economy, with mass layoffs being announced each week. Geopolitics remains fragile, with events in Ukraine and the Middle East continuing to threaten each region. Looking ahead even to the near-term, it is easy to see why so many investors continue to buy gold and silver to protect their wealth.
