Gold prices rose over 1% on the 14th at 2:33 PM US Eastern Time as US June Consumer Price Index (CPI) fell more sharply than expected, weakening interest rate hike bets and boosting gold's appeal. August delivery gold futures (GCQ6) on the CME's COMEX exchange stood at $4,064.90 per troy ounce, up $59.20 or 1.48% from the previous settlement of $4,005.70. The decline in consumer inflation eased concerns about rising prices, with the 2-year Treasury yield falling 9.30 basis points and the 10-year yield dropping 4.10 basis points intraday, maintaining a strong downward trajectory despite partial retracement.
US June CPI Falls 0.4% Month-Over-Month
According to the US Department of Labor, the June all-items CPI fell 0.4% month-over-month on a seasonally adjusted basis. The decline exceeded the market expectation of a 0.1% drop. This marked the largest monthly decline since April 2020, when CPI fell 0.8%. Core CPI, which excludes food and energy, remained flat at 0.0% compared to the previous month. The May core CPI had risen 0.2%, indicating a moderation in the pace of price increases.
Treasury Yields Drop as Inflation Concerns Ease
The softer inflation data pushed Treasury yields lower. The 2-year yield fell 9.30 basis points from the previous day's close, while the 10-year yield declined 4.10 basis points. Yields had dropped more than 10 basis points intraday before partially retracing, though the downward momentum remained strong. The cooling consumer prices reduced concerns about persistent inflation pressures in the economy.
Fed Rate Hike Probability Declines to 16.6%
The weaker inflation reading caused market expectations for Federal Reserve rate hikes to diminish sharply. According to the CME FedWatch Tool, the probability of a rate increase this month dropped to 16.6% from 41.7% the previous day. The likelihood that the Fed will hold rates steady through December rose to 19.5% from 10.7%. The previous day, Fed Governor Christopher Waller had indicated the Fed could raise rates at this month's Federal Open Market Committee (FOMC) meeting if June CPI came in hot again. The actual June CPI results significantly weakened expectations for a rate hike this month.
Metals Trader Attributes Gold Surge to Weak CPI Data
Ty Wong, an independent metals trader, stated that "gold prices surged on the back of weaker-than-expected CPI." Wong added that "given core CPI was flat, expectations for rate hikes in at least July and September will be significantly reduced." The softer inflation data enhanced gold's attractiveness as rate hike bets diminished across financial markets.
FAQ
What caused gold prices to rise over 1% on the 14th?
Gold prices rose over 1% after US June Consumer Price Index (CPI) data showed a 0.4% month-over-month decline, larger than the expected 0.1% drop. The weaker inflation reading reduced expectations for Federal Reserve interest rate hikes, boosting gold's appeal as Treasury yields fell.
How much did Fed rate hike probability change after the June CPI release?
According to the CME FedWatch Tool, the probability of a Fed rate increase this month fell from 41.7% to 16.6% following the June CPI data. The likelihood of rates remaining unchanged through December rose from 10.7% to 19.5%.
