CPI reveals poetics economics are needed to define recent moves in precious metals
Come writers and critics who prophesize with your pen and keep your eyes wide, the chance won’t come again …. Your old road is rapidly aging. Please get out of the new one, … For the times, they are a-changin' …. Bob Dylan
Gold for example has been for hundreds of years sensitive to levels of inflation with higher inflation leading to higher gold prices. The opposite is true for the relationship between gold and the current level of interest rates. Because gold has no inherent investment return unlike stocks or bonds it cannot generate cash flow in the form of profits dividends or interest payments.
Today the government released the latest consumer price index numbers revealing that headline inflation slowed down on a month-over-month basis. Inflation gained 0.1% in March much lower than the 0.4% increase in February. The CPI index for all urban consumers increased by 5% YoY, the lowest level of inflation in almost 2 years. When compared to the inflation level of 6.
The reason gold had a modest advance in light of declining inflation is that gold is reacting to both levels of inflation and interest rates simultaneously and today’s lower inflation numbers suggest that the Federal Reserve's recent actions have had an impact on reducing levels of inflation which might allow them to factor this into their current monetary policy by raising rates to a lesser degree and pausing rate hike sooner.
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