Gold Sinks as 4% Inflation Tops US Fed Interest Rates

PRECIOUS METALS rallied but then fell back towards new multi-month lows on Wednesday, with gold losing $225 this week so far after US inflation data matched analyst forecasts of a 3-year high for May, boosting expectations that the Federal Reserve will raise interest rates by the end of the year.

Core inflation in the cost of living − excluding fuel and food − slowed to 0.2% per month, down from April's 0.4% pace and capping annual inflation at 2.9%, the fastest since only September last year.

But energy costs continued to surge amid the US war with Iran, sending May's headline inflation rate on the Consumer Price Index soaring to 4.2% per year, the highest since April 2023.

That was the last time that the Federal Reserve's target overnight interest rate − currently at 3.62% − was last below the pace of inflation on the all-items CPI index.

With the Fed Funds rate now negative again in real terms, wholesale gold bullion rebounded $40 per troy ounce on the CPI inflation data, before falling back below $4140, its lowest since mid-March's 4-month low of $4100.

Silver had earlier set its lowest London 12 noon auction price since mid-December around $64 per troy ounce.

The more industrially-useful precious then rallied sharply on the CPI inflation data and held onto more of that rebound than gold, trading at $64.50.

Betting on next week's June decision from the Fed − now chaired by new Trump appointee Kevin Warsh − continued to back "no change" almost unanimously.

But a rate rise at October's Fed meeting remains a 50-50 shot, according to futures market prices tracked by the CME derivatives exchange, with traders putting a 2-in-3 chance on the US central bank raising the cost of borrowing by 0.25 percentage points or more by Christmas after last week's strong US jobs data.

Oil prices meanwhile rose 1.1% from yesterday's new June low in Brent crude futures as Iran struck Bahrain, Jordan and Kuwait in "retaliation" for US airstrikes on the Islamic Republic, themselves made in retaliation for Iranian forces downing a US military helicopter above the Strait of Hormuz.

"Iran's Military is a complete and total mess," tweeted US President Trump. "They have been completely defeated.

"[But] they've taken too long to negotiate a deal that would have been great for them, now they will have to pay the price!!!"

New York's stock markets opened the day lower, following Asian and European bourses down, as Israel continued to bombard southern Lebanon despite the "ceasefire" demanded by Trump.

Human rights organization Amnesty today called "settler violence" in the West Bank "not an aberration but an integral part of an organized [Israeli] state policy" to annex that part of Palestine.

Thursday is widely expected to see the European Central Bank raise interest rates for the 350-million citizen Eurozone.