November 1, 2021

US Inflation Is Strong, Why Is Gold Plunging?

 Gold -priced metals traded slightly higher after experiencing a sharp fall at the end of last week’s trading following rising US bond yields and a surge in the greenback dollar.

At the time of writing, spot gold traded hovering at $ 1,784 an ounce, up from the low of 1,773 it touched on Friday. Gold futures traded slightly higher at $ 1,785 an ounce.

Stronger US inflation data readings have pushed back 10 -year US treasury yields to 1.7% before declining slightly to 1.58% in the Asian session.

This also drove the greenback dollar higher to a 2 and a half week high compared to most major competitors.

The personal consumption expenditure price index (PCE), which is typically the Federal Reserve’s (Fed) choice for measuring inflation, showed an encouraging reading in September.

This in turn restores market optimism for the US central bank to raise interest rates earlier than expected. The Fed has previously firmly said that even if bond purchases end next year, that doesn’t mean they will raise rates after that.

Gold usually gets support from strong inflation data, as it is considered an inflation hedge.

However, due to its movement contrary to rising bond and USD yields, the yellow metal was driven lower.