【TOP1 Morning】Gold fell by more than $20 as yields, dollar gain post U.S. inflation data

Yesterday Market Review

Gold

Gold fell 1% in choppy trading on Wednesday, en route to snap a five-session-long winning streak, after April’s jump in U.S. consumer prices buoyed the dollar and U.S. Treasury yields, reducing appetite for non-yielding bullion.

The spot gold closed at $1815.29 per ounce; The silver closed at$26.955.

The Labor Department report on Wednesday showed U.S. consumer prices increased more than expected as booming demand in the reopening economy pushed against supply constraints. The consumer price index jumped 0.8% last month versus the 0.2% forecast by economists polled by Reuters. 

Inflation accelerated at its fastest pace since 2008 last month with the Consumer Price Index spiking 4.2% from a year ago.

“People trading gold and silver are a little concerned that maybe this inflation is getting a little too quick, and the Fed did say they have tools to tamp it down. ... Traders are concerned about what those tools may be,” said Bob Haberkorn, senior market strategist at RJO Futures.

“For this week, you’re going to see caution in the gold and silver markets.”

While gold is viewed as a hedge against higher inflation that could follow stimulus measures, higher Treasury yields have weighed on gold, which is down over 4% for the year so far.

U.S. Federal Reserve Vice Chair Richard Clarida on Wednesday said it’s “not yet” time to pull back on support for the economy, though he also added the central bank would not hesitate to use tools if it sees risk of persistent upward drift in inflation expectations.

“You’re still going to see the Fed remain stubbornly accommodative here, and that should provide some underlying support (to gold),” Edward Moya, senior market analyst at OANDA, said.

“What you’re going to see is that the market is going to slowly transition to viewing gold as an inflation hedge.”

Forex 

The U.S. dollar was volatile on Wednesday morning after inflation data showed a surge in consumer prices in April, as it struggled to hold the gains it initially notched on the data release.

The U.S. dollar index closed at 90.78.

The dollar index, which measures the U.S. currency against a basket of rivals, was last up 0.25% following the consumer price index report. Rising prices typically strengthen the dollar because the market believes the Federal Reserve will raise interest rates to quell inflation. But Fed Chair Jerome Powell has pledged to keep rates anchored and to allow inflation to run higher for a period.

The boomeranging dollar pulled other G10 currencies with it, ultimately leaving the euro 0.42% weaker at $1.210. The single currency on Tuesday had hit a 2-1/2 month high. The Japanese yen was 0.54% weaker on the day at 109.225 and the British pound was modestly weaker, down 0.14% to $1.412.

Oil

Oil price marked their highest settlement since March on Wednesday, boosted by an upbeat outlook for demand in the second half of 2021 and data showing a fall in U.S. crude inventories.

West Texas Intermediate crude settled at $65.690; International benchmark Brent crude closed at $68.812.

Traders also kept an eye on gasoline shortages across the U.S. Southeast as the Colonial Pipeline moves to restore service on a key fuel artery.

The International Energy Agency, in its monthly report, said the oil glut built up after the pandemic forced producing countries to slash output has almost returned to normal levels.

The IEA cut its 2021 forecast for demand growth, reflecting weaker-than-expected demand in the first half of the year. However, it left its outlook for the second half unchanged and said it expects global oil demand to have almost returned to its pre-pandemic normal level by the end of this year.

The report followed Organization of the Petroleum Exporting Countries’ monthly report released Tuesday, which left OPEC’s upbeat outlook for 2021 demand growth unchanged.

The mood in oil prices was bolstered by a very positive IEA report suggesting a “robust demand outlook” for all major consumers, including China and the U.S., said Manish Raj, chief financial officer at Velandera Energy. The U.S. demand picture “looks truly robust, with uptick in road traffic, hotel reservations and flight schedules all looking solid ahead of the Memorial Day weekend and summer travel season.”

The Energy Information Administration on Wednesday reported that over the past four weeks, motor gasoline product supplied, a proxy for demand, averaged 8.9 million barrels per day, up over 41% from the same time a year ago.

On a technical trading basis, prices for the U.S. benchmark have seen resistance at the $67 level so a close above that mark would be “bullish resolution to the consolidation and…open the door for an advance to 2018 highs near $75,” said Dan Russia, portfolio manager at Potomac Fund Management.

Stocks

U.S. stocks declined sharply on Wednesday as hotter-than-expected inflation data triggered massive selling, especially in technology shares.

The Dow Jones Industrial Average fell 681.50 points, or 2%, to 33,587.66, posting its worst day since January. The blue-chip benchmark tumbled as much as 713 points at its session low. The S&P 500 lost 2.1% to 4,063.04 for its biggest drop since February, while the tech-heavy Nasdaq Composite slid 2.7% to 13,031.68, bringing its weekly decline to more than 5%.

Investors have been fearful of a pick-up in inflation as it could squeeze margins and erode corporate profits. If price pressures run too hot for a sustained period of time, the Federal Reserve would be forced to tighten monetary policy.

“There are people who think the Fed is not just behind the curve, they’re maybe missing the point and by the time they start to play catch up, it’s too late,” Wall Street veteran Art Cashin said Wednesday on CNBC’s “Squawk on the Street.” 

Tech shares, which have been under pressure this week and this month, led the decline again Wednesday as bond yields jumped. Shares of Microsoft, Netflix, Amazon and Apple all fell more than 2%, while Tesla slid over 4%. Alphabet dropped more than 3%.

Strength in energy shares, which could do well in an inflationary environment, provided the broader market with some cushion. Occidental Petroleum climbed 2.4%. Chevron and Marathon Oil gained slightly.

Focus Today

20:30(GMT+8):United States Continuing Jobless Claims (01/MAY), Forecast: 3655K, Previous: 3690K;