A New Catalyst for Gold
Gold sprinted ahead during the first half of 2024 in spite of two traditional hurdles—high interest rates and a strong U.S. dollar—as strong central bank buying, anxiety over geopolitical tension, and consumer demand powered the precious metal. Those two hurdles appeared ready to fall in the second half of the year, clearing the way for gold to jump above the $2,400 level towards new all-time highs.
On July 11, the federal government reported a decline in the Consumer Price Index (CPI) of 0.1 percent, the first monthly drop in the CPI in more than four years. Consumer inflation in June stood at a relatively modest 3 percent for the prior 12-months. The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures Price Index, has been running below three percent through the year. While not quite down to the Federal Reserve’s two percent inflation target, economists said the CPI report provided a long-awaited green light for central bank policymakers to finally begin lowering interest rates.
Given that gold is widely considered a hedge against inflation, one might wonder why a decline in the inflation rate would be positive for the gold price. Studies have shown that over the long-term gold does serve as a good hedge against rising prices and an excellent store of value. But month-to-month fluctuations in the CPI have relatively little impact on the price of gold. A 2021 World Gold Council analysis found just 16-percent of the variation in gold prices can be attributed to monthly inflation measures.
Interest rates, on the other hand, often directly influence gold’s price. Since gold offers no yield, when rates decline fixed income investments become relatively less attractive to investors compared to gold. Moreover, declining U.S. interest rates typically pull the dollar down, making the precious metal more affordable for overseas investors since gold is priced in dollars on global markets.Real Time Precious Metals Data Below
