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May 12, 2021, 1:48 p.m. EDT

Gold prices log first back-to-back decline in May after jump in U.S. inflation pushes up bond yields and dollar

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By Myra P. Saefong and Mark DeCambre

Gold prices on Wednesday logged their first back-to-back retreat so far this month, as a reading of U.S. inflation revealed the biggest monthly increase in 13 years, leading to a rise in U.S. Treasury yields and the dollar.

The “hot CPI number is driving long Treasury yields higher and that is going to make it tough on gold bugs in the near-term,” Michael Armbruster, managing partner at Altavest, told MarketWatch. “We think gold has a lot of immediate downside from here.” 

The U.S. consumer price index soared 0.8% to match the biggest monthly increase since 2009. The rate of inflation over the past year jumped to 4.2% from 2.6% in the prior month — the highest level since 2008.

The 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.54% was up at nearly 1.67% in Wednesday dealings, while the ICE U.S. Dollar Index /zigman2/quotes/210598269/delayed DXY +0.22% , a popular dollar metric, climbed 0.6%.

Bullion had been mostly on the rise in the past six weeks, settling Monday at the highest level since February as the U.S. dollar had been hanging around its weakest level since February.

Still, there was a brief, “small positive reaction in gold” shortly after the strong U.S. inflation number,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. Prices then fell.

“Gold is commonly seen as an inflation hedge, so it received an initial boost from the surprisingly high headline U.S. inflation number,” he told MarketWatch. However, “rising inflation pressures also sparked rallies in the 10-year Treasury note yield and the U.S. dollar.”

June gold /zigman2/quotes/210036734/delayed GCM21 -1.95% /zigman2/quotes/210034565/delayed GC00 -2.01% fell by $13.30, or 0.7%, to settle at $1,822.80 an ounce, after declining nearly 0.1% on Tuesday.

Meanwhile, July silver /zigman2/quotes/210317766/delayed SIN21 -2.22% lost 42 cents, or 1.5%, at $27.24 an ounce, after it gained 0.6%, on Tuesday.

The current CPI report qualifies as “too hot,” due to concerns that the Federal Reserve may quickly taper asset purchases to “stem the inflation tide” and “anticipation of higher interest rates before the market has priced them in,” said Jeff Wright, chief investment officer at Wolfpack Capital.

It’s “pretty clear the unemployment incentives are leading to lower labor participation and higher wage inflation, which is being passed on “as the CPI shows,” he said. “Sharp data points are not positive for gold.”

Among other metals traded on Comex, July copper /zigman2/quotes/210057810/delayed HGN21 -1.33% finished lower, a day after marking a record high settlement . The contract fell nearly 0.6% to about $4.74 a pound.

July platinum /zigman2/quotes/218196645/delayed PLN21 -1.46% edged down by 1.2% to $1,225.90 an ounce, while June palladium /zigman2/quotes/217647915/delayed PAM21 -2.29% declined by 2.6% to $2,849 an ounce.

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