Gold Prices Drop as Mediocre CPI Softens Rate Cut Bets

 

Stock Market Climbs, Gold Prices Drop As Lukewarm CPI Dampens Odds of Jumbo Rate Cut

(Bullion News Network) – Gold began the early morning in the $2,520-30 range but fell abruptly once the August Consumer Price Index became public. The report, considered a core inflation metric used by the Federal Reserve’s Federal Open Market Committee (FOMC), will play an important role as the Fed decides how aggressively to cut interest rates at its upcoming meeting on September 17th. 

The readings came back close to expectations, with inflation rising slightly and showing a bit of lingering stickiness. This was good news for consumers but led to a rout in both the stock market and precious metals market. Stocks rebounded hours later after a stellar performance from Nvidia and other tech leaders.

Gold shed over $10, dropping to the $2,500-10 range in an hour after the middling report from the Bureau of Labor Statistics went live. A moderate recovery began at around 9:30 AM CST, pulling gold back into the $2,510-20 range. Gold will likely close the trading day in the middle of the $2,510-20 level at $2,515. Although consumer prices did decline according to the latest CPI, the lukewarm performance dampened the odds that the Federal Reserve will move to cut the federal interest rate by 50 basis points, a bet that has driven much of gold’s excellent performance in late August and early September. 

Gold falls as CPI data dampens talk of oversized US rate cut https://t.co/HIkFUVpaQ0 pic.twitter.com/t01fT1sweh

— Reuters (@Reuters) September 11, 2024

Here’s What the September 11th CPI Means for the Gold Market

On Monday, gold prices steadied as traders braced for the Consumer Price Index, a monthly inflation report produced by the Bureau of Labor Statistics. After a series of favorable inflation readings and troubling data from the U.S. labor market, Federal Reserve Chair Jerome Powell told economists in late-August that the “time has come” for interest rates to come down. Speculation about just how aggressive these rate cuts will be has driven gold’s recent bull run, with some experts anticipating that a “jumbo” 50 bps rate cut remained possible. 

Since the CPI is one of two main reports used by the Fed to gauge inflation, all eyes were on the BLS as the agency prepared to release its findings for the month of August. Because the report fell largely in-line with projections, it gave the Fed little reason to risk spooking markets by moving for a large 50 basis point rate cut. Instead, analysts now predict that a smaller 25 bps cut is far more likely. 

For gold traders, an aggressive 50 point rate cut would have likely sent prices to new heights. Gold typically negatively correlates with interest rates, so a jumbo cut would have been a major boon for the precious metals market. Gold prices fell sharply this morning in response to softened expectations for a significant 50 point rate cut from the Federal Reserve. A midday recovery in the stock market may have helped gold recover some of its losses as investors came to terms with the inflation data.

The Federal Reserve will meet next Tuesday to set the federal interest rate, a decision with serious implication for both the American economy and the precious metals market.