Gold and silver prices settled slightly lower on Thursday as Treasury yields climbed in the wake of stronger than expected U.S. September consumer price inflation data that supported further aggressive interest-rate hikes by the Federal Reserve.
A retreat in the U.S. dollar helped dollar-denominated prices for the precious metals pare back their early session losses.
Gold futures for December delivery
fell 50 cents, or less than 0.1%, to settle at $1,677 per ounce on Comex after trading as low as $1,648.30.
December silver futures
declined by 2 cents, or 0.1%, to $18.918 per ounce.
December copper futures
added 2 cents, or nearly 0.5%, to $3.4405 per pound.
The gold price declined after “hot consumer inflation data, which now puts some odds of the [Federal Open Market Committee] raising rates by a full point at their next meeting” in November, Peter Spina, president of GoldSeek.com, told MarketWatch. Hot inflation data “continues to hurt gold as yields rise.”
The U.S. cost of living rose 0.4% in September and pointed to high inflation persisting through the end of the year. Economists polled by The Wall Street Journal had forecast a 0.3% increase.
“Recent gold price movements remain highly correlated to inflation expectations, not current inflation levels,” said Tom Hainlin, global investment strategist at U.S. Bank Wealth Management. Negative investor headwinds are also “more than offsetting net gold purchases by central banks and any geopolitical risk premium.”
In Thursday dealings, the yield on the 10-year Treasury note
touched a high of 4.2153%, though eased back to 3.9056%. The U.S. dollar, meanwhile, turned lower to trade down 1% at 112.198, helping dollar-denominated gold futures pare a portion of their earlier losses.
“Gold remains well supported on pullbacks” and despite the 10-year yields touching highs over 4%, “gold remains above its prior lows near $1,600,” said Spina.
Interest rates can continue to surge higher, but “we all know the Fed cannot afford to aggressively raise rates for too long without creating a dangerous problem among the piles and piles of debt,” he said. “The system cannot sustain significantly higher rates without triggering a deflationary situation.”
“” The system cannot sustain significantly higher rates without triggering a deflationary situation.” ”
— Peter Spina, GoldSeek.com
“This is a difficult situation for the Fed and central banks. They will be forced to pivot, but the question is when,” Spina said. It is “not imminent,” and “I expect another two to three meetings maximum before we reach this point, at which gold will begin to soar.”
For now, traders will be watching to see how gold reacts in the coming days, he said. “I believe buyers will step in as seller exhaustion continues and speculators trying to short will be unable to break the price to new lows.”
Silver, meanwhile, is “even more exciting as the price falls below many miners’ production costs” near $18 an ounce, Spina said.