Gold Falls Again as US Inflation Slips, Fed's Real Rate Rises
Tuesday, 5/13/2025 15:58
GOLD BULLION fell for the 4th session running in London trading on Tuesday, dropping back towards yesterday morning's test of 4-week lows as US stock markets rose following softer-than-expected consumer price inflation data but interest rates ticked higher, raising the real cost of borrowing.
Silver prices also retreated with gold, back below $33 per Troy ounce, after US inflation on the headline CPI came in one tick lower for April at 2.3% per year, with the 'core' cost of living excluding fuel and food edging below 2.8% for the slowest annual pace since spring 2021.
Gold dropped almost $40 per Troy ounce from an earlier rebound to $3264, dipping within $20 of Monday's bottom, hit after
the weekend's raft of 'ceasefire' headlines for the US-China trade war, Russia's invasion of Ukraine, and the recent India-Pakistan standoff over Kashmir.
Longer-term borrowing costs meantime edged higher in the bond market, raising 10-year Treasury yields to 4.45% per annum, more than 0.1 percentage points above the Federal Reserve's current short-term target rate, despite the dip in inflation.
Betting on the Fed Funds rate continued to predict 'no change' before September − contrasting with the cut expected in June as recently as this time last month.
April's core CPI inflation data put the Fed Funds rate in real terms at the highest in 7 months, rising to 1.55% per annum.
That's still over half-a-point below the real Fed Funds rate of 2.1% seen last July, the highest since late-2007 marked the start of the Western banking credit crunch and then the global financial crisis.
Gold in real, inflation-adjusted terms has now risen by more than 50% since the real Fed Funds rate set a modern-era low of minus 6.38% as post-Covid supply chain blockages coincided with Russia's all-out invastion of Ukraine in February 2022.
"Compared to cash," claims a report in the UK's
Independent newspaper tosay, "gold does not lose value due to inflation, nor is it subject to the changeable nature of interest rates.
"That's part of why people view it as a safe haven, and see those standalone properties as positives."
Tuesday's CPI report was the first US inflation data to cover the period since
President Trump's 'Liberation Day' trade tariffs, since partly unwound, crashed the US Dollar and financial markets.
"There isn't a lot of evidence of tariffs boosting the CPI in April," reckons one US economist, "but it takes time."
"Certainly the risks to higher inflation [and] higher unemployment have increased," said Fed chief Jerome Powell at last week's post-FOMC meeting press conference after keeping the US central bank's target interest rate unchanged as expected.
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