U.S. CPI hits record high, gold waits for opportunity to fall

The U.S. Department of Labor released its June inflation report, with the overall CPI hitting a new high in more than four decades, reinforcing the Fed's aggressive interest rate hike stance. Inflation in June is expected to strengthen the Fed's hawkish will, with interest rate futures pointing to an 80% chance that the Fed will raise interest rates again by 75 basis points in September. Markets expect the Fed to continue raising the federal funds rate range by 75 basis points at the end of its July policy meeting. This would be its fourth consecutive rate hike and the third consecutive rate hike above 25 basis points.

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After June's higher-than-expected inflation data, the swap market showed that traders now see the possibility of a 100-basis-point rate hike by the Fed in July. The rate on the July contract briefly rose to 2.416% after the consumer price data was released, about 83.6 basis points above the current effective federal funds rate. That means the market sees a 75 basis point hike as a certainty, and about a one-third chance of a full percentage point hike.

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A key factor in providing some support for the safe-haven precious metal was the widespread sell-off in equities amid persistent fears that the global economy could slip into a recession. Still, sustained dollar buying on the back of hawkish Fed expectations has worked to the detriment, limiting any meaningful gains in dollar-denominated gold.

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The potential shock to gold prices from the upcoming inflation data is of particular concern, given that the size of the long positions of proprietary traders in the gold market remains extremely inflated. In the face of a staunchly hawkish Fed, bulls have built up sizable positions during the pandemic...these positions are now fragile, suggesting that gold remains vulnerable to further losses.

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U.S. President Biden arrived at Tel Aviv Ben Gurion International Airport in Israel by special plane, starting a three-day visit to the Israeli-Palestinian region. Local media predict that continuing to strengthen US-Israel relations, responding to the so-called Iranian threat, and building a so-called regional security alliance will be the main topics of Biden's visit to Israel. On the 14th, Biden will hold bilateral talks with Lapid and will hold an online Quartet Leaders Summit with Lapid, Indian Prime Minister Narendra Modi and UAE President Mohammed bin Zayed Al Nahyan.

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The International Monetary Fund (IMF) lowered its forecast for U.S. economic growth this year and next, and raised its unemployment rate forecast through 2025, warning that a broad-based rise in inflation posed a "systemic risk" to both the U.S. and global economies. GDP is expected to grow 2.3% this year, down from the 2.9% forecast in June. The IMF now expects the U.S. unemployment rate to be 3.7 percent this year, up from a previous forecast of 3.2 percent. The group also expects unemployment to exceed 5 percent in both 2024 and 2025.