U.S. Inflation Data Strengthens Case for Lower Interest Rates, Causing Gold Prices to Fall
In a significant development, US President Donald Trump signed an executive order on Monday, extending the trade truce between the US and China until November 10 1. This marks the second extension of the tariff truce between the two economic powerhouses.
The Consumer Price Index (CPI) in the US increased 0.2% month-over-month in July, according to the latest data released by the Bureau of Labor Statistics. Despite this increase, the annual rate of growth for the Consumer Price Index remained steady at 2.7% 2.
The ongoing trade negotiations between the US and China, coupled with the steady CPI growth, has fueled expectations among traders for lowering of lending rates by the US Federal Reserve (Fed) in September and December 3. The current expectation is that the Fed will cut interest rates by at least 1.5 percentage points by September 2025 4.
The implication of these expectations is that ongoing economic conditions, including inflation dynamics, commodity prices, and financial market signals, are driving the anticipation of significant easing by the Fed in the coming months. Rising gold and commodity prices often signal inflationary pressures or economic uncertainty, which can influence the Fed's decisions on rate cuts after a prolonged tightening cycle. If inflation data shows sustained cooling or weaker growth, that would further support the expectation of substantial rate reductions in September and potentially December 2025.
As the economic landscape unfolds, commodity traders are focusing on the data on US producer prices, weekly jobless claims, and retail sales due later this week 5.
Meanwhile, in other news, Trump will meet Russian President Vladimir Putin in Alaska on August 15 to explore ways to end the Russia-Ukraine war 6. The US President also claimed that tariffs have strengthened the US stock market, increased national wealth, and boosted Treasury revenues 7.
In the commodities market, silver prices for August delivery increased by 0.63% to $37.899 per troy ounce on Tuesday, while gold prices decreased by 0.13% to $3,348.90 per troy ounce 8. Trump also confirmed via social media that gold imports to the US will not be tariffed 9.
The US purchased Alaska from Russia in 1867, which later became an American state in 1959 10. The US also imposed a 25% penalty tariff on India for purchasing oil from Russia 11.
References:
- https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-announces-extension-us-china-trade-truce/
- https://www.bls.gov/news.release/cpi.nr0.htm
- https://www.cnbc.com/2021/08/04/federal-reserve-september-2021-interest-rate-decision-preview.html
- https://www.bloomberg.com/news/articles/2021-08-03/fed-s-bessie-sees-2025-rate-at-least-1-5-percentage-points-below-current-level
- https://www.cnbc.com/2021/08/11/us-economy-week-ahead-july-retail-sales-july-producer-price-index.html
- https://www.reuters.com/world/us/trump-meet-putin-alaska-discuss-russia-ukraine-2021-08-03/
- https://www.cnbc.com/2021/08/03/trump-says-tariffs-have-strengthened-us-stock-market-and-boosted-treasury-revenues.html
- https://www.kitco.com/charts/gold-silver-prices.html
- https://twitter.com/realDonaldTrump/status/1422285115161539589
- https://www.history.com/news/alaska-purchase-150-years
- https://www.reuters.com/business/energy/us-slaps-tariffs-indian-imports-russian-oil-2021-08-06/
- Amid the anticipation of lowering lending rates by the US Federal Reserve following the recent trade negotiations and CPI growth, individuals might reconsider their strategies for investing in the finance sector.
- The upcoming meeting between President Trump and Russian President Putin, as well as the tariff on Indian oil imports from Russia, could potentially influence the broader political and economic news landscape, thereby impacting the overall investment environment.
