In this week's market report:

• Gold, silver, and platinum are all down

• Australian dollar recovers earlier losses following drop in US CPI, trends in Australian CPI

• Influences on the US Consumer Price Index rise and the likelihood of continued Fed hikes

Dear Investor,

Spot Gold Price AUD [XAUAUD]

Source: Trading View
(Click to enlarge)

Spot gold sinks following CPI data: spot gold has fallen 0.13% to $2,524.77AUD

Silver follows suit: silver decreased to $29.33AUD per troy ounce over the past week

Platinum plateau: platinum has steadied at $1,375.64AUD per troy ounce

Palladium soars: palladium has rallied to $3,233.24AUD over the past week, deviating from the sinking of gold, silver and platinum

Australian dollar recovers earlier losses following drop in US CPI, trends in Australian CPI

Following the announcement of new US CPI data and the subsequent slight drop in the USD (more information on this below), the Australian dollar stands at $0.71 AUD to the USD, rising 0.27%. The rise in AUD value against the USD can be good news for long-waiting Australian investors, after continued USD strength has proven challenging.

AUD to USD Currency Chart

Sources: OFX

Moreover, despite the RBA rate decision of a 50-basis point hike in early August that sent the AUD spiralling, the AUD’s recovery was aided by June’s trade surplus reaching AUD 17.67 billion in June, surpassing both the projections and the previous record of AUD 15 billion in May.

It is important to consider not only the impact of the US CPI on the AUD, but also the Australian Consumer Price Index itself, which rose 1.8 per cent in the June 2022 quarter and 6.1 per cent annually according to the Australian Bureau of Statistics (ABS).

Head of Prices Statistics at the ABS, Michelle Marquardt, reports:

The quarterly increase of 1.8 per cent was the second highest since the introduction of the Goods and Services Tax (GST), following on from a 2.1 per cent increase last quarter...
Shortages of building supplies and labour, high freight costs and ongoing high levels of construction activity continued to contribute to price rises for newly built dwellings. Fewer grant payments made this quarter from the Federal Government's HomeBuilder program and similar state-based housing construction programs also contributed to the rise...
The CPI's automotive fuel series reached a record level for the fourth consecutive quarter. Fuel prices rose strongly over May and June, following a fall in April due to the fuel excise cut.
Annual trimmed mean inflation was the highest since the series commenced in 2003 and annual goods inflation was the highest since 1987, as the impacts of supply disruptions, rising shipping costs and other global and domestic inflationary factors flowed through the economy.

Read on here.

Influences on the US Consumer Price Index rise and the likelihood of continued Fed hikes

The new US CPI data was released this week, coming in 0.2% lower than the projected 8.7-8.8%, sitting at 8.5% y-o-y and flat compared to June. Analysts put this further drop to the decline of petrol costs and has led to widespread revision of theories regarding the Federal Reserve’s September interest rate hike.

The U.S. Bureau of Labor Statistics' data reported by Trading Economics details:

Energy CPI rose by 32.9%, after hitting a 42-year high of 41.6% in June mainly due to a big slowdown in gasoline costs (44% vs 59.9%), fuel oil (75.6% vs 98.5%), and natural gas (30.5% vs 38.4%) while electricity prices accelerated (15.2%, the most since February 2006). Cost also slowed for new vehicles (10.4% vs 11.4%) and airline fares (27.7% vs 34.1%), but inflation continued to march higher for food (10.9%, the largest increase since May of 1979, vs 10.4%); shelter (5.7% vs 5.6%); and used cars and trucks (6.6% vs 1.7%). The CPI came in at 296.276 in July, compared with 296.311 in June and market forecasts of 296.669.

Source: U.S. Bureau of Labor Statistics

This lower-than-expected CPI data indicates that the Fed’s inflation management strategy of raising interest rates is proving effective, a belief reflected by the market. However, many analysts are wary of using this to project a slowdown in the Fed’s interest hikes.

San Francisco Federal Reserve Bank President, Mary Daly, lends credence to the idea that the Fed will follow its trend of increasing, projecting that a 50-basis point increase in September “makes sense” in light of recent CPI data, however, is wary of being “head-faked” by improving inflation readings and that a 75-basis point increase is not out of the question.

John Authers for Bloomberg corroborates this sentiment, writing that:

Even if the peak has been scaled, the issue of the descent now confronts us. And it will be difficult. Although undeniably positive, this consumer price index report is not a big game-changer, and it’s unlikely to have much impact on how the Federal Reserve behaves for the rest of the year.

Read on here.

Gold's performance in economic climates similar to the one we are in now has only gone to show its mettle and reinforces its safe-haven status. With Fed increases likely on the horizon, many investors have a knee-jerk reaction leading them to sell precious metals – however, gold’s reliable trend of fast turnaround from interest-related lows reinforces its ability to stand the test of an unstable, volatile market, such as gold’s rally from lows of $1682.70USD to $1724.64USD in the last weeks of July after consistent lows in Q2. Read the report here.

Silver bullions coins have barely touched the shelves this week, being one of our most popular items with clients coming in constantly to get theirs. These sales are closely followed by our 1kg Silver Cast Bars, which are being widely favoured by investors. Moreover, as we settle into the new Financial Year, there has been a significant increase in SMSF (Self-Managed Super Funds) client acquisitions as investors roll over from Industry-Managed Super Funds to SMSFs, leading to an uplift in gold demand. Read more about SMSF & Gold here.

Warm regards,

The ABC Bullion Team