By Stefan Gleason, Money Metals Exchange
As the Federal Reserve continues to hint at potential rate cuts this year, investors in precious metals are evaluating the inflation outlook. The financial markets have seen some pullback recently after strong gains earlier in the year, which is typical after a significant rally.
During the summer months, gold and silver often experience choppy price movements, but this doesn’t always hold true. The rally could resume at any moment, so investors should stay vigilant.
This week, gold prices have risen 1.5% to reach $2,340 per ounce, while silver prices have remained relatively flat around $24.40 per ounce on Friday morning.
The Federal Reserve decided to keep interest rates unchanged as anticipated on Wednesday. Despite some easing in price pressures in recent data, the Fed acknowledged that inflation levels are still too high. Although the Consumer Price Index (CPI) did not show a monthly increase in May, the annual rate remains at 3.3%.
While the official measures suggest some moderation in inflation pressures, alternative indicators show a much higher rate of price increases, particularly in essential goods and services like housing, food, healthcare, and insurance.
Behind the current price data, commodities such as oil and metals are exhibiting signs of strain that could lead to significant price hikes in the future. Gasoline prices, in particular, are a key indicator of inflation and have not yet surged during the summer driving season.
Despite avoiding the $100 per barrel mark, oil prices have been influenced by the Biden administration’s decision to tap into the strategic petroleum reserve, depleting its supply significantly. This move has sparked criticism from Republicans, who accuse President Biden of manipulating energy prices for political gain.
Across various commodity markets, supply shortages or insufficient growth in supply are becoming increasingly apparent. Factors like extreme weather conditions in the agricultural sector and reduced cattle herds are contributing to rising prices in key commodities.
In the metals space, supply deficits are looming for gold, silver, platinum, palladium, and other rare elements, which are challenging and costly to extract.
Investors who believe that inflation will trend lower may be surprised by potential disruptions in commodity markets in the coming months, leading to higher prices.
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