Higher interest rates exude a bearish influence on gold because gold does not contain any intrinsic yield. When fixed income assets such as treasuries have high yields it diminishes the allure for gold. This scenario is the economic environment that we find ourselves in today.

One-Two Punch

This week two important reports revealed new data concerning current inflationary pressures. The Consumer Price Index revealed that inflation for February came in hotter than expected. Yesterday’s release of the most current Producer Price Index revealed that producers raised the price of their goods by 0.6% during the month of February. Because a hot PPI is a precursor to a hot CPI we can expect that inflation this month could continue to be elevated.

This has pressured gold off the highs achieved last Friday. Tuesday’s release of the CPI took gold futures down $25, and on Wednesday gold recovered gaining back approximately $15 of Tuesday’s decline. For the remainder of the week, gold softened but still did not trade to a lower low than the low achieved on Tuesday.

One week ago, gold futures challenged $2200 per ounce and traded to a high of $2203. The price of gold above $2200 for the first time in history was short-lived, but the fact that gold has remained above $2150 all week is a sign that a base is being formed, and we may see that price tested again soon. Gold has been extremely resilient and able to hold onto most of its recent gains even with moderate headwinds from dollar strength, and higher treasury yields.

Gold Futures Hold Steady Amidst Anticipation of Fed’s March FOMC Meeting