Gold Defies Surging Real Rates Amid Waning Demand

The recent surge in real interest rates should have sunk gold and silver prices, but they refused to fall. Instead, gold has hit a ten-week high, while the US dollar sold off against its major counterparts despite improved real returns.

July's consumer price index (CPI) report landed exactly on forecast, with headline inflation at 3.4% year-on-year and core measure excluding food and energy at 2.5%. However, markets barely reacted to the news, with the S&P 500 hovering near record highs but showing troubling internals.

Core inflation eased for reasons related to energy, hinting that demand is quietly giving way. The bond market also stopped believing in lasting inflation threats, even with oil rebounding.