Gold moved above $4,400 an ounce this week boosted by news that July inflation data was subdued, likely easing pressure on the Federal Reserve to hike interest rates.
Gold jumped to a two-month high. Bullion has climbed swiftly in recent days as the near-term trend turned strongly positive for the precious metal.
Consumer inflation rose 0.1% month over month in July, pulling the annual pace of inflation down to 3.4% from 3.5% in June. The inflation report suggested the energy shock from the Iran war faded slightly last month.
The odds of a September Fed interest rate hike dropped below 50% following the inflation news, according to CME Group data.
Gold benefits from a steady-to-weaker interest rate environment, so inflation news that suggests the Fed may not need to raise interest rates was bullish for the precious metal. Because gold doesn’t pay interest, the metal can appear less attractive when rates rise.
Digging into the inflation data, grocery prices declined in July for the first time in March, in part to a sharp decline in the cost of lettuce. Ground beef prices slid 1.6%, the highest amount in 6 years. Other categories like medical care and airfares saw rising prices.
While the July CPI report was modestly better, high levels of inflation for everyday goods remains a frustration for Americans.
In other economic news this week, the U.S. budget deficit surged in July, totaling $432.3 billion in July, the highest since March 2021, the Treasury Department said. Spending on Medicare and debt interest costs fueled the big jump.
Interest on the federal government’s debt is now the third largest spending category behind Social Security and Medicare. For the fiscal year to date, the U.S. has paid $1.17 trillion on interest payments for the nation’s $39.9 trillion debt.
Rising government debt loads are another reason investors have been piling into precious metals over the past year. Concerns the U.S. debt has become unsustainable with no clear mandate from Washington policymakers to address the spending problem has encouraged investors to diversify into the safety of gold, which is not tied to any one government’s debt, obligations or currency.
Gold momentum is picking up as the precious metal enters a seasonally positive period. Gold has jumped over $400 an ounce in just a few weeks. The precious metal’s long-term uptrend is showing signs of awakening from it’s summer slumber. Upside targets for gold now include $4,800 and $4,900 over the near-term. If you’ve been considering increasing your allocation to gold, don’t wait. Markets are moving now.
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