Gold Rebounds as US Inflation Drops But Crude Oil Leaps

The PRICE of GOLD rebounded on Tuesday, reversing 2/3rds of yesterday's $130 plunge as US inflation data came in well below analyst forecasts, soothing fears that the Federal Reserve is going to raise interest rates this summer even while crude oil prices leapt as the US-Iran war escalated.

"If we get another hot reading on core inflation this week," warned Fed governor Christopher Waller on Monday, "then the FOMC will need to consider tightening monetary policy in the near term."

But today the Bureau of Labor Statistics said that the Consumer Price Index fell in June from May, with a 9.7% monthly drop in gasoline prices leading small drops in the cost of medical care, transportation, clothing and electricity.

Those drops helped keep the 'core' cost of living − which excludes 'volatile' fuel and food prices − flat for the month, pulling the annual pace of inflation in core CPI down to 2.6%, the slowest since March and a 4.5-year low when reached last November.

With gold briefly retouching $4100 per troy ounce today, "If we get policy right − and we will − the inflation surge of the last five years will be a thing of the past," said new Fed chairman Kevin Warsh, giving semi-annual testimony to the House of Representatives' Committee on Financial Services for the first time.

But US crude oil meantime leapt to the highest in a month, jumping above $80 per barrel for WTI August futures on the CME derivatives exchange as the US-Iran war escalated further.

US stock markets also rallied alongside gold, regaining 1/3rd of Monday's 0.8% drop on the S&P500 index.

Government bond prices also rallied, pushing down the annual yield offered by 10-year US Treasury debt by 1/10th of a percentage points from a 1-month high of 4.64%.

"Labor Department reports annual inflation in June was 3.5%," Trump tweeted on the Truth Social platform he owns today between attacking political rivals and backing Republican candidates for the fall's mid-term elections.

"[It's the] biggest monthly drop in over six years," the President said, even though the annual pace of headline CPI inflation in fact slowed harder month-to-month 4 times in early 2023.

Gold prices were then trading below half of today's level.

"The Strait of Hormuz will never be reopened through war, hostility, or acts of aggression by the United States," said Iran's army spokesman after Trump declared a 20% levy on all cargo transiting the vital waterway.

With the US bombarding Iranian targets again Tuesday, Iran continued to target oil tankers attempting to traverse the Strait, while its Houthi allies in Yemen fired missiles at US ally Saudi Arabia, accusing the Islamic monarchy of "blatant aggression" in targeting the Houthi-controlled Sanaa airport and widening the Middle East conflict.

Like gold, silver also rebounded on Tuesday's soft US inflation data, briefly topping $59.60 per troy ounce before easing back 65 cents as gold retreated to $4075.

Both platinum and palladium prices meantime jumped through last weekend's closing level after not falling as deeply as gold or silver, trading at 1-week and 4-week highs respectively of $1640 and $1300.

Betting that the Fed will keep its key interest rate on hold at this month's meeting in 2 weeks' time leapt from 58% to nearly 88%, and betting on 'no change' at September's Fed meeting jumped to 40%, the strongest level in more than a week.