What effect has Ukraine, inflation, and the Fed had on gold prices?

LONDON (Apr 12)  Gold prices have been affected by three primary factors, inflation, the war in Ukraine, and lastly, statements and actions by the Federal Reserve. Overwhelmingly, market participants are focused on the effects of spiraling inflation levels and the war on Ukraine providing bullish market sentiment for the precious yellow metal. While statements and actions by the Federal Reserve have curtailed any sustained upside movement gold continues to gain value this year.

As of 4:15 PM EDT gold futures basis, the most active June contract is trading at $1957.80, after factoring in today's gain of $12.20 or +0.63%. Most noteworthy today is the high gold achieved in trading overseas, reaching an apex of $1974.60.

However, following the intraday high were statements by the president of the Chicago Federal Reserve Bank, Charles Evans said, that he would not oppose interest rates moving higher to more of a neutral stance between 2.25% and 2.5% by the end of the year. This could only be accomplished by the Federal Reserve raising interest rates by ½% at two of the remaining FOMC meetings this year.

Speaking to the Detroit economic club Charles Evans said, "Fifty is obviously worthy of consideration; perhaps it's highly likely even if you want to get to neutral by December." The net result of his statements today took gold from its intraday high roughly $18 above current pricing, to its current price just below $1960 per ounce.

The primary reason that gold continues to trade higher in light of a much more aggressive Federal Reserve is the current level of inflation as well as the war in Ukraine.

Tomorrow the government will release the Consumer Price Index (CPI) report, which will give the investment community the latest information on the current level of inflation in the United States. The current consensus by economic analysts is that the March report will show another uptick in inflation. Adding to the former pressure, which took inflation to its current 40-year high is the war in Ukraine which resulted in higher food and oil pricing. The CPI inflation index came in at 7.9% for February and it is anticipated that tomorrow's report will show that inflation has moved substantially past 8%.

KITCO