Gold Prices Dip as Persistent US Inflation Pressures Markets
Recent US inflation data revealed an increase from the previous period, while the core inflation, stripping out the energy and food costs, remains stubbornly above restrictive levels.
→ All of these indicate persistent upward cost pressures, placing the Federal Reserve in a precarious position, especially amid ongoing uncertainty surrounding tariffs. Even President Omair Sharif’s report highlights that “tariffs are beginning to bite,” suggesting that these costs are now being passed on to consumers. According to Federal Reserve Logan, “the base scenario is that monetary policy needs to remain firm for a while longer to reduce inflation,” while also reiterating the risk of having “deeper economic scars”.
Both the US and Canada are feeling the impact, with inflation rising and potentially delaying central bank rate cuts. Especially when Trump’s tariff deadline on August 1st is approaching, with a potential of facing a 35% tariff rate for Canadian goods imports.
Market Reaction
Higher Consumer Price Index (CPI) figures are bad news for bond yields, as the yield reacts to the changes in the Federal Reserve’s interest rate stance, particularly in short-term yield, which is known for its sensitivity. Both the US 2-year and 10-year Treasury yields surged after the data release. Gold also experienced a sharp drop to $3,322 per ounce before recovering.
This comes when the market is currently repricing its rate decision forecasts, with the CME FedWatch Tool even indicating a possibility of an interest rate hike next year.
*** The longer the Federal Reserve holds the interest rate dear to their heart, → A Strong dollar would disfavor the gold price.
Political Response
Shortly after the inflation data was released, President Donald Trump reiterated his desire for lower interest rates, aiming to ease the bond market tensions and reduce concerns about the national debt. And he also optioned Bessent as the next Federal Reserve Chair.
