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Gold rises after another hot US inflation report

posted onMay 11, 2022

The prices of gold extended gains on Wednesday (May 11) after another higher-than-expected inflation reading in the US signaled the economy continues to face upward price pressures.

The Labor Department said consumer prices in April were up by 8.3% compared to the same month a year ago while economists had expected the pace of growth to slow to 8.1%. Energy prices skyrocketed by 30.3% year-over-year, while food prices jumped 9.4%, the most since April 1981.

Gold was up 0.92% at 9:45 am ET at $1,855.27 per ounce. The latest inflation data strengthened the case for further hawkish rate hikes by the US Federal Reserve.

"Overall, the April data will probably strengthen the Fed's resolve to continue hiking rates by 50bp at the next couple of meetings - and could lead to renewed speculation about a 75bp hike or an inter-meeting move," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

"But with goods shortages tentatively easing and signs that wage growth is set to cool, we still think a more pronounced drop back in inflation will allow officials to slow the pace of tightening in the second half of the year” Hunter added.

US President Joe Biden stated on Wednesday that the country's annual inflation, remains "unacceptably high". Inflation is posing a serious political problem for Biden and congressional Democrats in November's midterm election.

This week an Investors Business Daily/TIPP poll found that Biden’s approval had fallen to 39%, approaching his previous record low of 38% set in February, and confidence in the US economy was close to an eight-year low.

As many Americans are struggling to afford necessities including food, shelter and fuel, the US central bank is seeking to pull off the notoriously difficult — and risky — task of letting the economy down gently enough to slow inflation without causing a recession. Economists say such an outcome is possible but unlikely with inflation this high.

By making it more expensive to borrow money, policymakers are hoping to slow rapid spending and hiring, which could help supply to catch up with demand. As the economy returns to balance, inflation should come down.

“If U.S. inflation is shown to be climbing persistently, that could see spot gold break below its 200-day simple moving average and immediate Fibonacci support level around the mid-$1,830 region,” Han Tan, chief market analyst at Exinity told CNBC.


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