Gold prices fell for the second consecutive day, trading around $4,715.61 per ounce after sliding 0.4% on Tuesday. According to Investing.com, the precious metal has declined as accelerating US inflation has increased expectations of Federal Reserve rate hikes. The US consumer price index jumped the most since 2023 in April, with the headline CPI rising 0.6% month-over-month and 3.8% year-over-year, compared to consensus estimates of 0.6% and 3.7%. The 3.8% reading is the highest since a 4% rise in May 2023, confirming that surging oil prices have become a structural force feeding through the entire inflation pipeline. The inflation data pushed Treasury yields higher, with the 30-year Treasury yield briefly touching 5% while the two-year yield remained close to the key 4% threshold, weighing on non-yielding assets such as gold. As per Benzinga, crude oil futures jumped above $101 a barrel, up 3.2%, while gold fell 0.7% pressured by a stronger dollar and rising Treasury yields.
Overnight-indexed swaps now price in more than 40% chance of a Fed rate hike by year-end, up from almost zero at the end of last month. According to Investing.com, expectations for interest rate hikes in September, October, and December indeed ticked up after the CPI report, with the CME FedWatch tool showing increased odds. The inflation data confirmed that surging oil prices were indeed boosting consumer prices, with the energy prices index climbing 3.8% month-over-month in April, accounting for over 40% of the monthly headline CPI growth. Higher rates are generally negative for gold as it pays no interest, though the metal has avoided heavy losses despite growing expectations for a rate hike. According to Benzinga, short-term interest-rate futures remained pinned to a hawkish trajectory with traders now pricing a probability of over 70% of a Fed rate hike by April 2027, with the door to cuts firmly shut through year-end. The April print effectively shuts the door on any near-term Fed rate cut hopes.
The core inflation index, which excludes energy and food prices, clocked in at 2.8% compared with expectations of 2.7% and up from 2.6% previously. As reported by Morningstar, Preston Caldwell, chief US economist, noted that "The fact that higher input costs from oil are being readily passed through to consumers, as well as other signs of broadening inflation impact, should both add to the Fed's worries about inflation." According to Capital Economics, Stephen Brown said pressure on core inflation is "still a bit too strong for comfort, and the [Federal Open Market Committee] is likely to be concerned by renewed signs of food inflation accelerating." According to Benzinga, the largest monthly seasonally adjusted increases came from fresh vegetables (tomatoes up 15.1%), personal care products (up 0.7%), and household furnishings and operations (up 0.7%). The shelter component, the stickiest component of core inflation, reaccelerated to 0.6% month-over-month from 0.3% in March, lifting its annual pace to 3.3% with owners' equivalent rent rising 0.5% and lodging away from home jumping 2.4% on the month.
The energy crisis from the Strait of Hormuz blockade reverberated across the Consumer Price Index basket, with the energy index rising 3.8% in April, accounting for over 40% of the monthly all-items increase. As per Benzinga, gasoline prices jumped 5.4% month-over-month and are now up 28.4% year-over-year, while fuel oil surged 5.8% and is running 54.3% higher than a year ago. Electricity climbed 2.1% on the month and 6.1% annually, with the broader energy basket now rising 17.9% over the past 12 months — the most aggressive 12-month surge in years. The gasoline price spike hit CPI inflation for the second month, with the CPI for gasoline of all types weighing 3.6% of the all-items CPI, year-over-year jumping by 6.1%. Since January 2020, the index has soared by 44%. Despite the negative pressure from rising interest rate expectations, gold has maintained some resilience due to strong demand, particularly from central banks. According to Bloomberg, Yuxuan Tang, Asia head of rates and FX strategy at JPMorgan Private Bank, noted this is not new, citing the same pattern seen starting in 2022 when gold prices stayed resilient when rates spiked. The key driver remains demand, particularly strong buying from central banks, which supports the view that gold can deliver an uncorrelated return profile.
India, the second-biggest gold consumer, raised import tariffs on gold and silver to 15% from 6%, according to two official orders reported by Bloomberg. The surprise move came as the nation attempts to defend its currency and shore up foreign-exchange reserves. Spot gold was 0.4% lower at $4,695.18 per ounce at 11:20 a.m. in Singapore, while silver was little changed at $86.47 and is up 17% in May.
