Gold prices in India today rose to the highest level in more than a month, after a spike in global rates. On MCX, gold futures rose 1.2% to 52,109 per 10 grams while the silver percentage is higher by 0.5% to 61,875 per kilogram. In international markets, the yellow metal jumped 2% to a two-month high after data showed US inflation rose less than expected in October. Hopes that the Federal Reserve would adopt a less aggressive approach to interest rate hikes has led to a drop in bond yields and the US dollar.
The dollar index fell 2% to a near two-month low, making gold less expensive for holders of other currencies. The benchmark US 10-year Treasury note yield fell to a one-month low. The US consumer price index (CPI) rose 0.4% last month, below the 0.6% estimate by economists polled by Reuters. Spot gold rose 2.5% to $1,749.23 an ounce.
Yellow very sensitive to US interest rates, as these increase the opportunity cost of holding unprofitable bullion. Silver rose 2.7% to $21.56 an ounce.
Inflation stood at 7.7%, the lowest since January, before Russia’s war in Ukraine pushed up commodity prices. More importantly for the Fed, the core measure excluding food and energy is expected to be slower.
Softer US inflation could support gold prices as lower inflation could prompt the Fed to slow the pace of rate hikes, analysts said. “Also, some Federal Reserve members favor smaller rate hikes. The investment Demand was limited as SPR gold holdings were unchanged yesterday after 2.9 tonnes dumped on Tuesday. On the price action front, $1,687/ounce has now become support,” Kotak Securities said in a note.
Lower-than-expected inflation also triggered a risk-on rally in the stock market. The tech-heavy Nasdaq 100 posted its biggest intraday gain since April 2020. The relief rally helped stabilize the crypto market despite the turmoil surrounding crypto exchange FTX. Big Fed rate hikes are the main reason Wall Street has struggled this year.
Slower inflation could prompt the Federal Reserve to adjust the size of rate hikes at its next policy meeting in December, after pushing through four consecutive large increases of 0.75 percentage points. Following Thursday’s inflation report, traders are increasingly turning to bets on the Fed only raising rates by 0.50 percentage points next month, rather than a larger hike. (With agent input)
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