Gold prices drop sharply then recover following surge in U.S. CPI data

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Kitco NEWS 12 May, 2021 - 07:35am 25 views

Editor's Note: The article was updated to reflect rising prices following an initial selloff.

(Kitco News) - The gold market has managed for now to overcome strong selling pressure and prices have pushed into positive territory after consumer price pressures surged higher in April.

Wednesday, the U.S. Labor Department said its U.S. Consumer Price Index rose 0.8% in April, after a 0.6% rise in March. The data significantly beat consensus forecasts as economists were forecasting a 0.2% rise.

The report said that annual inflation rose 4.2% last month.

“This is the largest 12-month increase since a 4.9-percent increase for the period ending September 2008,” the report said.

Stripping out volatile food and energy prices, core inflation also rose more than expected, increasing 0.9% in last month, following March’s rise of 0.3%. The report said that this is the largest increase in core CPI since April 1982.

Gold prices were trading in roughly neutral territory just ahead of the data and dropped sharply in initial reaction; however, prices have managed to bounce off their session lows and climed into positive territory. June gold futures last traded at $1,838.60 an ounce, up 0.14% on the day.

At first blush, the report should be positive for gold, which is seen as an inflation hedge; however, some analysts have noted that rising inflation could force the Federal Reserve to raising interest rates faster than expected.

“Everyone was expecting a bump because of base effects but this is truly a surprise and is going to test the FOMC resolve and the market's resolve to look through bottlenecks or temporary factors,” said Adam Button, chief currency strategist at Forexlive.com.

Andrew Grantham, senior economist at CIBC also said that the latest inflation numbers could put some renewed pressure on the U.S. central bank.

“While the dramatic upside surprise was driven primarily by a couple of standout areas, which are obviously unlikely to repeat such readings going forward, there was enough firming in inflation elsewhere as well to suggest that price pressures could prove more persistent than FOMC projections and the consensus forecast seem to suggest,” he said.

Michael Pearce, senior U.S. economist at Capital Economics said that although the inflation numbers were scary, some of components of the report point to a transitory rise. He added that this report won’t force the Fed to adjust its monetary policies.

“With employment still more than 8 million short of its pre-pandemic level, we expect the Fed to maintain its dovish line, even if, as we expect, inflation gains broaden out over the coming months,” he said.

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Used cars, travel and furniture are just some of many things that are getting more expensive

CNN 12 May, 2021 - 09:20am

Updated 10:20 AM ET, Wed May 12, 2021

No, You Are Not Imagining It. Prices For A Lot Of Things Did Jump In April

NPR 12 May, 2021 - 07:30am

You may have already noticed it, but yes, many things you need or love have gotten more expensive. A lot more expensive.

Consumer prices surged 4.2% in April from the depressed levels of a year earlier when the global economy was hit hard by the coronavius pandemic, according to the Labor Department on Wednesday.

That was the largest 12-month increase since a 4.9% increase in September 2008, in the depths of the Global Financial Crisis, the Labor Department added.

Prices rose 0.8% on a monthly basis.

The accelerating inflation comes as companies have been forced to pay more to secure critical materials like lumber and steel amid continued disruptions to the global supply chain. And the government also pumped trillions of dollars into the economy in a bid to blunt the impact from the coronavirus, contributing to inflation.

Price increases impacted a range of goods from big ticket items like used cars to kitchen staples like bacon. Airfares and hotel prices also jumped as rapid vaccine rollouts are encouraging Americans to travel again.

"Everything you can think of is going up," says William Lee, chief economist at the Milken Institute.

For an economy finally starting to roar back from the pandemic recession, higher inflation poses a major potential risk. Companies have reported record profits but they could struggle if they continue to face higher costs. And millions of Americans remain unemployed or struggling, and are likely to be disproportionately affected by higher prices.

What matters most is how long higher prices lasts.

"The one thing economist always try to do is distinguish between a price pop and inflation," Lee says.

Federal Reserve Chair Jerome Powell has argued the economy is experiencing the former. The policymaker insists the increase in prices is going to be short lived – or "transitory" – reflecting supply chain snarls and pent-up demand from Americans now happy to spend money on trips or outdoor activities.

The Fed wants inflation to be around 2% over the long term, and policymakers have committed to keeping interest rates near zero for the time being. But the risk is what happens if prices continue to rise beyond what the Fed is expecting.

Kellogg's and General Mills have already raised prices for cereal, for example. In recent weeks, airfares have gotten more expensive, and so have everyday items from Coca-Cola to fuel.

Another factor is wages. Restaurants and hospitality are among the sectors that have struggled to find workers recently over what economists believe is a range of factors, including health concerns and extended unemployment benefits provided by the government.

That's forcing some businesses to offer higher wages or benefits in a bid to attract workers, which could contribute to higher inflation.

"We are rebooting the global economy, and it takes time to work through these supply chain issues, and to connect workers with employers," says Julia Coronado, the president of Macropolicy Perspectives, an economic consulting firm.

"It's probably going to take us all summer, and into the fall, to get a sense of where the dust settles, and what the post-pandemic economy is starting to look like."

U.S. Consumer Prices Rise Faster Than Expected: Live Updates

The New York Times 12 May, 2021 - 04:04am

The Consumer Price Index climbed 4.2 percent during the month, from a year earlier, the Labor Department said, the fastest pace since 2008. From March to April, prices increased 0.8 percent. Economists had expected the C.P.I. to rise 3.6 percent over the year, and 0.2 percent from the month before, based on the median forecast in a Bloomberg survey.

The core index, which strips out volatile food and energy, rose 0.9 percent in April from March — its biggest monthly increase since April 1982. It climbed 3 percent over 12 months.

Prices are shooting higher as inflation figures lap extremely weak readings from 2020 and as supply chain disruptions begin to bite and demand climbs. The monthly increase in April was broad-based, as prices for used cars accelerated and the cost of air travel, shelter and home furniture also increased.

But central bankers have said they think the jump will be short-lived, and have made it clear that they plan to look past a temporary increase when setting policy. The technical quirks at work in April will last only a few months, officials often point out, and while it is less clear when shortages will be resolved, they are expected to eventually work their way through the system as businesses ramp up production to meet demand.

The demand surge that seemed to drive the monthly gain in April — the one pushing travel costs higher, for instance — struck some economists as being exactly the kind of reopening bump that the Fed has said it can tolerate.

“It shows the services side of the economy is reawakening,” said Sarah House, a senior economist at Wells Fargo. “This is largely what the Fed expected, it’s just coming faster and with larger force.”

April 2021: +4.2%

Percent change in Consumer Price

Some of April’s jump can be explained through

what’s known as base effects — prices fell

significantly last spring, so the increase now from

April 2021: +4.2%

Percent change in Consumer Price

Some of April’s jump can be explained through what’s known as base effects — prices

fell significantly last spring, so the increase now from the year prior is larger.

Notes: C.P.I. of 100 is equal to prices in 1984.

Richard H. Clarida, the Fed’s vice chair, spoke shortly after the release, saying that he was “surprised” by the pace of increase, and that it might take time for supply to catch up with demand as the economy reopens.

“We’re outcome based, this is one data point,” Mr. Clarida cautioned. But he added that “over time we will be taking signal from this data, and it’s going to be very important that any pressures to inflation that arise be transitory.”

The Fed defines its inflation target using a separate measure, the Personal Consumption Expenditure index, but that metric relies on data from the C.P.I. and is also expected to move above the central bank’s goal. Fed officials aim for 2 percent annual inflation on average.

The concern on Wall Street has been that the fast recovering economy, huge stimulus efforts from Washington and pent-up demand from consumers could mean that price gains are more pronounced or sustained than the Fed can accept.

A key part of the central bank’s role is to keep price increases contained, so a steep acceleration in prices that is expected to last might prompt it to dial back policies that keep money cheap and credit flowing. Reducing the support would probably cause stock prices to sink.

On Wednesday, yields on government bonds rose in the minutes after the consumer price data was released and stocks declined for the third consecutive day.

Central bankers have been clear that they would react if, contrary to their expectations, signs of a persistent price takeoff emerged. But they have also said they want to avoid withdrawing support from the economy early, which could leave the labor market not completely healed and put longer-run inflation at risk of returning to uncomfortably low levels, where they have been mired for much of the past decade.

But Mr. Clarida said after the report that if there are signs that inflation is going to jump in a lasting way, “we would use our tools to bring inflation to our 2 percent longer-run goal.”

The S&P 500 fell 0.7 percent in early trading, and government bond yields jumped. This week, the benchmark stock index had dropped close to 2 percent through the close on Tuesday.

The moves came after the Labor Department said the Consumer Price Index climbed 4.2 percent during the month, from a year earlier, the fastest pace of increase since 2008. From March to April, prices increased 0.8 percent. Economists had expected the C.P.I. to rise 3.6 percent over the year, and 0.2 percent from the month before.

The International Energy Agency said global demand for oil would be slightly less than expected in the second quarter of this year because of the toll of the pandemic in India. Still, it said, its projections for overall growth in the second half of the year were mainly unchanged, “based on expectations that vaccination campaigns continue to expand and the pandemic largely comes under control.”

In the oil markets, Brent crude gained 1.1 percent to $69.30 a barrel, and West Texas Intermediate, the U.S. crude benchmark, rose 1.1 percent, to just above $66 a barrel.

Gasoline prices continued to rise as the Colonial Pipeline, a 5,500-mile conduit stretching from Texas to New York, remained closed because of a ransomware attack. The AAA motor club said Wednesday that the national average price had reached $3.008 a gallon, up about 2 cents from Tuesday’s average price and 8 cents from a week ago. A year ago, the average price was $1.854.

The British economy grew 2.1 percent in March from the previous month, the Office for National Statistics said on Wednesday. The reopening of schools was one of the biggest reasons for the larger-than-expected jump in economic growth, as well as a rise in retail spending even though many stores remained closed because of lockdowns.

The statistics agency estimated that gross domestic product fell 1.5 percent in the first quarter, slightly less than economists surveyed by Bloomberg had predicted, while the country was under lockdown with nonessential stores, restaurants and other services such as hairdressers shut.

Though the British economy is still nearly 9 percent smaller than it was at the end of 2019, before the pandemic, the Bank of England forecasts it to return to that size by the end of this year.

The European Commission also upgraded its forecasts for the region on Wednesday. It predicted the European Union economies would grow 4.2 percent this year, up from a forecast of 3.7 percent three months ago. Germany’s economy is forecast to grow 3.4 percent this year and Spain, which suffered Europe’s deepest recession last year, is expected to grow nearly 6 percent.

“The E.U. and euro area economies are expected to rebound strongly as vaccination rates increase and restrictions are eased,” the commission, the executive arm for the European Union, said on Wednesday. The recovery will be driven by household spending, investment, and a rising demand for European exports, it said.

Still, despite the optimistic outlook, the commission warned that the risks were “high and will remain so as long as the shadow of the COVID-19 pandemic hangs over the economy.”

Even as millions of people were vaccinated, the number of new coronavirus cases globally reached a peak in late April as the pandemic has struck especially hard in India. The uneven distribution of vaccines around the world and the emergence of new variants has the potential to set back the recovery.

The National Institute Of Economic and Social Research in London said on Monday that it did not expect the British economy to return to its prepandemic size until the end of 2022, predicting a slower recovery than the central bank.

Economists at the institute expect lower global growth because of uncertainty about the global vaccine rollout and lingering doubts about the end of the pandemic inducing more people to hold onto their savings, rather than spend it.

Yet a recent slide in confidence in technology stocks could make it more difficult for Masayoshi Son, the founder of the technology conglomerate turned investment powerhouse, to keep up the momentum after what seemed like an impossible change of fortune.

Last May, SoftBank was in crisis after posting a loss of more than $12 billion. Its big bets on Wall Street favorites, like WeWork, the troubled office space company, and Uber, resulted in huge losses.

But it was not down for long. Riding high on a post-pandemic stock boom, SoftBank has since notched seemingly unthinkable gains. When compared with its previously released figures, the year-end results implied a profit for the first three months of 2021 alone of more than $17 billion.

In a live-streamed press event Wednesday, Mr. Son opened by showing a photo of the humble town where SoftBank began, before calling the huge earnings numbers “lucky plus lucky plus lucky.”

Fiscal years ending March. 1 trillion yen = 9.2 billion U.S. dollars.

Mr. Son told investors on Wednesday that he would not deny that he is a gambler. But he said he regretted some decisions. The question now is whether his current run of luck can continue.

SoftBank’s profit, mostly paper gains from increases in investment values, was based heavily on a jump in the price of South Korean e-commerce firm Coupang after it listed earlier this year. Results were also lifted by strong share price rises from other SoftBank investments, DoorDash and Uber.

The share price of all three companies has fallen sharply over the past month on a broader pullback in technology shares, in part related to fears over inflation out of the United States.

Investors appeared more interested in the broader tech sell off than Mr. Son’s luck, as SoftBank’s shares fell more than 3 percent on Wednesday, despite the solid gains.

The General Court of the European Union struck down a 2017 decision by European regulators that ordered Amazon to pay $300 million to Luxembourg, home of the company’s European headquarters and where regulators said the company received unfair tax treatment. The court said regulators did not sufficiently prove that Amazon had violated a law meant to prevent companies from receiving special tax benefits from European governments.

The decision, which comes as European Union and American officials attempt to reach a global tax agreement that could result in higher levies against tech companies, undercuts an effort by Margrethe Vestager, an executive vice president at the European Commission, who issued the Amazon penalty and has led efforts to force big tech firms to pay more in taxes. The companies have been criticized for using complex corporate structures to take advantage of low-tax countries like Luxembourg and Ireland. In 2020, Amazon earned 44 billion euros in Europe, but reported paying no taxes in Luxembourg.

Tech companies are using the courts to fight European regulators trying to rein in the industry’s power. Last year, Apple won an appeal against Ms. Vestager to annul a decision to repay about $14.9 billion in taxes to Ireland, where the company has a European headquarters. That case is now before the European Union’s highest court.

Google has appealed three decisions and billions of dollars in fines issued by the European Commission over anticompetitive business practices related to its search engine, advertising business and Android mobile operating system.

More legal battles may loom, as regulators have issued preliminary charges against Apple and Amazon for violating antitrust laws.

On Wednesday, Amazon cheered the decision by the Luxembourg-based court.

“We welcome the court’s decision, which is in line with our longstanding position that we followed all applicable laws and that Amazon received no special treatment,” Conor Sweeney, a company spokesman, said in a statement.

At best, it would take several days and probably at least through the weekend to return gasoline, diesel and jet fuel shipments to normal. At worst, any delays could further encourage the panic buying that left thousands of outlets out of gasoline in Tennessee, Georgia and several other states in the Southeast, pushing up regional fuel prices.

Over the last few days, Colonial has opened segments of the pipeline manually to relieve some supply pressures in a few states, including Maryland and New Jersey. But anxiety has persisted despite the assertions of industry analysts that the impact of the shutdown would remain relatively minor as long as the artery was fully restored soon.

Gasoline in Georgia and a few other states rose 8 to 10 cents a gallon on Wednesday, a price jump typically seen only when hurricanes interrupt Gulf of Mexico refinery and pipeline operations.

The pipeline can carry roughly three million barrels of fuel a day over 5,500 miles from Texas to New York.

Source: United States Energy Information Administration

A gallon of gas increased an average of 10 cents in South Carolina and 6 cents in North Carolina on Wednesday, while gas in Virginia rose about 8 cents a gallon. Before the pipeline was shut down, gas prices were edging higher, as they typically do as summer approaches. Over the past week, gas has jumped 24 cents in Georgia and 18 cents in South Carolina.

Filling stations in Southern states were selling two to three times their normal amount of gasoline on Tuesday, according to the Oil Price Information Service, an organization that tracks the oil sector. Some stations are running out of fuel while others are limiting purchases to 10 gallons.

Gov. Brian Kemp of Georgia signed an executive order suspending his state’s gasoline tax through Saturday, which amounts to roughly 20 cents a gallon. Gov. Roy Cooper of North Carolina, Gov. Ralph Northam of Virginia and Gov. Ron DeSantis of Florida each declared a state of emergency in an effort to suspend some fuel transport rules.

American Airlines said it had added stops to two daily flights out of Charlotte, N.C. One, to Honolulu, will stop in Dallas, where customers will change planes. The other, to London, will stop in Boston to refuel. The flights are expected to return to their original schedules on Saturday.

Southwest Airlines said it was flying in supplemental fuel to Nashville, and United Airlines said it was flying extra fuel to Baltimore; Nashville; Savannah, Ga.; and Greenville-Spartanburg International Airport in South Carolina.

This week, two leading European names announced their latest funding rounds, as investors look to capitalize on the expansion of the online fashion market.

Lyst, a London-based online fashion platform with 150 million users, said it had raised $85 million ahead of a planned initial public offering. In 2020, the company — which acts as an inventory-free search portal for high-fashion brands and stores to sell to trend-focused online shoppers — said it had seen a 1,100 percent increase in new users on its app. It said the company has a gross merchandise value of more than $500 million.

Appetite for secondhand fashion also boomed in the last year, as more shoppers looked to declutter wardrobes, earn cash by selling old clothes and became more aware of the environmental impact of the industry.

Vinted, which is based in Lithuania, says it is Europe’s largest secondhand fashion marketplace with more than 45 million members globally. On Tuesday, the company said it had raised 250 million euros in a Series F funding round, giving the start-up a valuation of 3.5 billion euros, or $4.24 billion.

“We want to replicate the success we’ve built in our existing European markets in new geographies and will continue investing not only to improve our product, but also to ensure we continue to have a positive impact,” said Vinted’s chief executive, Thomas Plantenga.

It’s not alone. Shares of Nikola, which is developing heavy trucks, have fallen from around $65 to about $11, for example. The S.E.C. is looking into allegations by an investment firm that Nikola made false statements about its technology.

On Wednesday morning, Taiwan’s health minister, Chen Shih-chung, said that the island’s new outbreak has reached a “very severe stage” and that restrictions could be upgraded in “the coming days.” He spoke after the government reported 16 new cases of local infection on Wednesday and seven on Tuesday.

The Taiwan Stock Exchange weighted index slumped as much as 8.6 percent intraday following the news, a nearly 13 percent loss from its April peak. The market regained some ground later in the day and finished down 4.1 percent.

Taiwan has been a rare success story in a pandemic-stricken world. The island democracy threw up its borders when the pandemic first began to spread from mainland China and has heavily limited travel. It has recorded only 1,210 total cases, according to a tally by The New York Times.

But the authorities haven’t been able to trace the handful of cases that have popped up in recent days, raising questions about whether the government will limit the number of people who can gather within restaurants or other businesses.

Taiwan instituted some Covid-related restrictions on Tuesday, the first in a long time. It suspended large events, limiting outdoor gatherings to 500 people and indoor gatherings to 100 people. On Wednesday morning, the health minister said that the restrictions might be stiffened within days.

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