Gold Outlook Improves Thanks to US Inflation Growth, Biden Spending Plan
Gold prices rallied on Friday as news about growing bipartisan support of infrastructure bill, signs of easing consumer inflation and spending in May cause broad USD weakness. However, in the week, Gold returns were negative.
The Fed's unexpected hawkish rhetoric last week as well as the Fed June economic projections triggered a sharp drop in precious metal prices. However, the US budget plan is likely to have a positive effect on gold, as it has to be funded in large part by borrowing in the Treasury market.
As the $ 1.2 trillion bill inched closer to approval, USD came under pressure due to concerns about real interest rate outlook. As the Gold nominated in USD, broad depreciation of the US currency made Gold price cheaper for holders of other currencies, boosting demand for it.
Core PCE data released on Friday showed that monthly growth of inflation slowed to 0%, missing estimate of 0.4%. Taking into account Powell remarks (“we want to see persistently high inflation before raising rates”) the chances for early tightening somewhat eased, worsening USD real interest rate profile.
Two members of the Fed's leadership warned on Thursday that inflation in the near future could rise more than the regulator had expected which could warrant early policy tightening.
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