By Barani Krishnan.
Investing.com — There is inflation everywhere. It’s a hot commodity that gold bulls enjoy.
U.S. gold futures soared to four-week peak on Friday. Wall Street saw its worst performance in three weeks as Wall Street fell after their latest U.S. Inflation reading showed 41-year highs. These data suggested that the Federal Reserve may be more aggressive when it comes to rate increases.
It is meant to act as a hedge against inflation. Gold typically rises when investors are worried about the decreasing purchasing power of dollars. But it’s not a perfect correlation as gold has also broken down various times this year when inflation data came in higher.
Gold and the Dollar have rallied in tandem on several occasions this year, further complicating the hedging hypothesis. Inflation concerns boosted bullion values while the greenback appreciated on the expectation of Fed rate rises.
This was Friday’s situation.
The grew by 8.6% during the year to May, expanding by its fastest rate since 1981, as the cost of virtually everything — from food to fuel, shelter and clothing — rose again last month, the Labor Department said.
According to GasBuddy data, the average gasoline pump price was more than $5 per gallon for Thursday, the highest ever recorded in America.
The University of Michigan also reported that its June survey showed a record low for its closely-watched index. This is a result of Americans becoming increasingly frustrated with the fact that inflation takes a larger bite out of their paychecks every month.
Reacting to the various inflation data, on New York’s Comex rallied to just shy of $1,880 an ounce by 1:00 PM ET (17:00 GMT), showing a gain of almost $25 or 1.3% on the day. The benchmark gold futures contract also rose 1.3% for the week.
The greenback was traded against six currencies in the. It hit a 3-week high of 104.23. U.S. bonds yields, led primarily by returns on the reached a one-month peak of 3.17%.
“The initial shock of a scorching hot inflation report sent gold prices to fresh session lows as traders quickly bumped up Fed rate hike expectations for the September meeting,” said Ed Moya, analyst at online trading platform OANDA. “Then the 5-year and 30-year Treasury yields inverted and growth concerns triggered some safe-haven flows for gold.”