Gold Rally Continues Amid Persistent Inflation Concerns

Gold futures, based on the most active June contract, are currently trading at $2,438.50, up $21.10 or 0.87% for the day. The June contract opened at $2,422.20, reached a high of $2,454.20, and a low of $2,411.10. Gold futures have gained significant value over the past month, considering they were trading at $2,298.20 on Wednesday, May 1.

Spot gold hit another record high of $2,416.64 today after reaching an all-time high of $2,450.01. The rise in gold prices occurred concurrently with moderate dollar strength, as the dollar index gained 0.13%, reaching 104.639.

The genuine concern about the level of inflation and its impact on the Federal Reserve's future monetary policy has been driving the rally in gold prices. Concerns about the number of rate cuts the Federal Reserve will initiate are prevalent and have been highly supportive of gold prices.

The Federal Reserve raised interest rates to the highest level in 23 years and has maintained its current benchmark Fed funds rate between 5% and 5.25% for just over a year. Last year, inflation did decline, and the Fed saw significant progress, with the peak of just over 9% and the April 2024 CPI at 3.4% year-over-year. However, current levels of inflation are still dramatically above the Federal Reserve's target of 2%.

Reuters reported that "Comments from Fed officials have reflected the U.S. central bank's cautious view of its progress in reining in inflation and the timing of interest rate cuts. Fed Vice Chair Philip Jefferson said on Monday it was too early to tell if the inflation slowdown is 'long-lasting,' while Vice Chair Michael Barr said restrictive policy needs more time. Atlanta Fed President Raphael Bostic said it will 'take a while' for the central bank to be confident that price growth is on a sustainable downward path."

Barr, speaking at an Atlanta Fed conference in Florida, said, "I think we are in a good position to hold steady and closely watch how conditions evolve."

"I believe that our policy rate is in restrictive territory as we continue to see the labor market come into better balance and inflation decline, although nowhere near as quickly as I would have liked," said Jefferson.

As long as inflation continues to run hot and above the Fed's 2% target, the Federal Reserve's forward monetary policy will remain restrictive and not shift to a more accommodative stance, as outlined in the latest Summary of Economic Projections after the March FOMC meeting. In that document, the Federal Reserve continued to project that they would cut rates by 0.25% three times this year.

Elevated inflation could continue to be highly supportive of gold prices as a hedge against eroding purchasing power.

Wishing you as always, good trading,