Gold futures mark their second highest settlement on record

“What we are seeing is the initial phase of the next bull cycle in gold,” he said. “It is a stealth bull market move with very few western investors yet participating, but with the recent price moves, starting to get noticed.”

Gold prices got a boost after U.S. wholesale prices saw their biggest decline in almost three years, down 0.5% in March, with the reading on Thursday offering a sign of further easing in monetary policy by the Federal Reserve in the months ahead. The increase in these so-called core prices over the past year eased to 3.6% from 4.5%, a faster decline than economists had expected.

“Gold’s response to the PPI data shows how this current leg higher is being driven by leveraged bets in gold derivatives, fueled in turn by hopes for Fed rate cuts, rather than by demand for actual bullion,” said Adrian Ash, director of research at BullionVault. For now, however, “the physical market has clearly swallowed the rise above $2,000.”

A day earlier, data showed the March consumer price index rose 0.1% in March, with the yearly rate of inflation slowing to 5% from 6%. The core rate of inflation, excluding food and energy, rose 0.4%, in line with market expectations.

The headline CPI reading Wednesday was a tenth below consensus, said Brien Lundin, editor of Gold Newsletter. Thus, “inflation was once again falling,” with this sign of lower inflation sending gold prices higher on Wednesday.

Against that backdrop, the U.S. dollar weakened further, providing support for dollar-denominated gold prices. The ICE U.S. Dollar index
DXY,
+0.16%
lost 0.6% to 100.94 in Thursday dealings, trading 0.9% lower week to date.

“That’s what happens in this topsy-turvy world where everything is interpreted according to how it might influence [Federal Reserve] policy,” Lundin said Wednesday afternoon in emailed commentary. “So lower inflation, by encouraging the Fed to possibly hold off on rate hikes, is deemed bullish for gold.”

Gold pared its gains during Wednesday’s trading session, then moved up in electronic trading. Minutes from the Federal Open Market Committee’s March meeting revealed that several Fed officials considered whether a pause in interest-rate hikes would be appropriate.

There were concerns over a growing credit crunch, said Lundin, amid stress in the banking sector. Those concerns pointed toward a possible Fed pause at the central bank’s meeting in May, and they “quickly lit another fire under the gold price.”

Gold futures trade near their record highs of $2,069.40 from Aug. 6, 2020 on a closing basis, and $2,089.20 from Aug. 7, 2020 on a intraday basis.

Fed funds futures continue to price in at least two interest rate cuts before the end of the year, according to the CME’s FedWatch tool. On the other hand, the median forecast from the Fed’s “dot plot” has rates remaining on hold until 2024, and Chairman Jerome Powell has said he won’t cut rates until inflation has been vanquished.