Gold Reclaims $4,000 as Cooler U.S. Inflation Data Eases Rate-Hike Fears; Stocks, Bonds Rally

Gold prices surged back above the psychologically important $4,000-an-ounce level on Tuesday, as a surprise slowdown in U.S. consumer inflation in June dramatically reduced the probability of a Federal Reserve rate hike at the central bank’s July 28-29 meeting.

Spot gold rose 0.5% to $4,020.58 an ounce in London trading, after climbing as much as 0.8% during the session, according to NDTV Profit. Silver advanced 0.8% to $58.12 an ounce, while platinum and palladium also traded higher. The recovery came after gold had fallen below $4,000 on Monday amid escalating Middle East tensions and hawkish Fed commentary.

The catalyst was a Labor Department report showing the Consumer Price Index fell 0.4% in June, the first monthly decline since April 2020, driven largely by a 5.7% drop in energy prices. On a year-over-year basis, CPI rose 3.5%, down from 4.2% in May and below the 3.8% economists had forecast. Core CPI, which excludes volatile food and energy components, was unchanged month-over-month and rose 2.6% year-over-year, down from 2.9% in May, the Star-Advertiser reported.

Traders responded by sharply unwinding bets on an imminent rate increase. According to Businesstimes, traders now see only about a 10% chance of a quarter-percentage-point rate hike at the Fed’s July meeting, down from 35% before the report. CME’s FedWatch tool showed an 83.4% likelihood the Fed will hold its key interest rate steady at the July meeting, up from 58.3% on Monday, as reported by indiatimes.com.

“Today’s print takes a July hike off the table,” Zach Griffiths, head of investment grade and macro strategy at CreditSights, told the Financial Post. “While inflation is still too high and the situation in the Middle East is deteriorating, today’s data should give them enough cover to stay in wait-and-see mode.”

The bond market rallied sharply. Two-year Treasury yields, which closely track monetary policy expectations, tumbled as much as 14 basis points to 4.14%, the biggest drop since August, before paring some of the decline, the Financial Post reported. The Bloomberg Dollar Spot Index slipped 0.2%, providing additional support to gold and other commodities.

**Equities and Crypto Join the Rally**

U.S. stocks closed higher. The S&P 500 gained 0.38% to 7,544.03 points, while the Nasdaq Composite rose 0.91% to 26,109.65, led by a rebound in chip shares. The Dow Jones Industrial Average eked out a 0.05% gain to 52,527.56, according to indiatimes.com.

European shares also ended higher, with the pan-European Stoxx 600 index closing up 0.2% at 642.1 points after recouping earlier losses of as much as 0.9%. Basic materials jumped 2.4% as metal prices rallied against the weaker dollar, Businesstimes reported.

Second-quarter earnings season kicked off with solid results from major U.S. banks. Goldman Sachs surged after beating profit expectations on strong trading and dealmaking. JPMorgan Chase and Bank of America also advanced after consensus-beating profits, though Citigroup and Wells Fargo declined, indiatimes.com noted.

Cryptocurrencies surged on the improved rate outlook. Bitcoin rose 3.8% to $64,434.55, Ethereum jumped 6.1% to $1,874.98, and Solana gained 2.8% to $76.97, according to Nasdaq. The report noted that the CPI data means the Fed is less likely to raise rates, which had been pressuring crypto prices.

**Middle East Tensions Keep Risks Alive**

Despite the relief from inflation data, renewed conflict in the Middle East kept oil prices elevated and clouded the inflation outlook. The U.S. reimposed a naval blockade on Iran and launched airstrikes after the collapse of a ceasefire, with Iran attacking oil tankers in the Strait of Hormuz. Brent crude rose above $85 a barrel, Businesstimes reported.

Fed Chair Kevin Warsh, in his first congressional testimony since confirmation, struck a hawkish tone, telling lawmakers the central bank had “no tolerance for persistently elevated inflation” and downplaying the significance of the June figures, saying they did not indicate that “everything is well,” according to the Financial Post and indiatimes.com.

Economists warned that the June data may be short-lived. “Energy prices plunged on the Iran cease-fire and memorandum of understanding,” Scott Anderson, chief economist at BMO Capital Markets, told the Star-Advertiser. “But with fighting back on in the Gulf, the MOU in tatters and energy prices heading higher again in July, the balance of risks remains more heavily weighted toward a rate hike at some point this year.”

Gasoline prices have already started climbing, with the national average rising to $3.86 a gallon from $3.79 a week ago, according to AAA data cited by the Star-Advertiser. Traders still see about a 60% chance of a rate hike in September, the Star-Advertiser reported.

“For the Fed, this is a relief, but not enough to put it at ease,” Carl Weinberg, chief economist at High Frequency Economics, told the Star-Advertiser. “We predict prices will accelerate again in the next few reports as energy and fuel prices rise again.”

The mixed signals leave markets in a delicate balance. While the June CPI data provided a powerful near-term tailwind for risk assets, the underlying geopolitical and energy price dynamics suggest the rate-hike debate is far from over.