Last week saw gold taking another rally higher on further relief/confirmation that US inflation has peaked. The US CPI headline print was in line with the consensus of 6.5% and the core was too at 5.7%. These readings were also both down, lower from the prior, and the market continued to sell the USD after these prints even though they had been anticipated.
The inflation component of the US Michigan report was a more mixed inflationary bag. The 1-year inflation expectations fell to 4% vs 4.4% expected.
This was a reassuring print that the Fed’s rate hiking work was bearing fruit. However, the 5-year inflation expectations ticked up to 3% from 2.9%. Fed Watcher, WSJ’s Timiraos, says that most wise heads see that it is the longer-run expectations on inflation that really matter.
However, this higher inflationary print did not stop gold from running higher as the USD weakness further pushed gold towards $2000. The question is where next for gold? The answer lies in the answer to the question, ‘where next for the Fed.’ The Fed’s last communication was that there would be no rate cuts in 2023. However, short-term interest rate markets see the Fed making 2 rate cuts in the second half of this year. Some see gold taking a breather now until the future course of US monetary policy becomes clearer. Key support for gold sits here and any drops lower should find buyers as long as investors continue to think the Fed will be cutting rates twice this year.