Gold prices headed higher Friday as investors turned to safe havens following a hotter-than-expected reading on U.S. May inflation numbers, but not before briefly tumbling to their lowest levels in three weeks early in the session.
“Ordinarily, the pattern has been that a strong dollar — like today — and when bond yields are up, you have less support for gold,” said Peter Cardillo, chief market economist at Spartan Capital Securities, by phone. “Today, the opposite is happening because of the real ugly inflation data we got.”
Stocks plunged Friday after the U.S. May inflation report, with the S&P 500 SPX, -2.24% off 2.5% at mid-session. The CPI data showed the cost of living in the U.S. climbed 1% in May on the back of higher rents, gas and food prices, keeping the rate of U.S. inflation at its highest level in more than 40 years.
The headline reading came in at 8.6% annualized, topping the previous cycle high seen in March. Gold, Treasury yields TMUBMUSD10Y, 3.160% and the dollar shot higher Friday, with investors scrambling for safety on concerns about the economic spillover from the surging cost of living and the Federal Reserve’s likely response.
“Hopes for confirmation of peak core inflation have been crushed,” said Louis Navellier, co-founder of Navellier, in a daily client note. “The market reaction has been swift and severe.”
In response to the high inflation reading, economists at Barclays said they expect the Federal Reserve next week to pull the trigger on a fed funds rate increase of 75 basis points at their June 14-15 policy meeting, up from the 50-basis-point increase earlier telegraphed.