US inflation data has raised expectations that the Federal Reserve will keep interest rates steady next week. Following this, gold prices are trading near three-week lows on Thursday.
The biggest uncertainty for gold: Fed’s interest rate cut trajectory
cryptokoin.comAs you follow from , gold is trading close to the lowest levels of the session. But he’s not seeing significant selling pressure after consumer prices rose more than expected last month, even as the Federal Reserve continues to fight an uphill battle against inflation. On Wednesday, the U.S. Labor Department announced that the much-anticipated CPI rose 0.6% last month, following a 0.2% increase in June. The data were in line with expectations.
Spot gold remains flat at $1,905.49. However, it fell close to its lowest level since August 25 at $1,905.10 on Wednesday. US gold futures contracts fell 0.3% to $1,926.70. OCBC Executive Director and FX Strategist Christopher Wong evaluates the latest developments as follows:
The biggest uncertainty is the Fed’s interest rate cut trajectory for 2024. This continues to be one of the catalysts driving gold volatility. US CPI was largely within expectations. In a way, previous concerns about high price pressure have eased.
Gold investors are waiting to see these!
The US dollar index and 10-year Treasury bond yields eased after the CPI data. This indicated that the Fed will not change interest rates next week. Investors see a 97% chance that the Fed will leave interest rates unchanged on Wednesday, according to CME’s FedWatch tool. In addition, he gives a 42% chance of an interest rate increase in November. Tim Waterer, Chief Market Analyst at KCM Trade, comments:
Investors are waiting to see whether the upcoming PPI data reflects the rise in CPI numbers. If the rise in inflation repeats in the coming months, it will be inevitable for the Fed to tighten further. Considering the increase in energy prices, November looks set to be an increasingly ‘lively’ meeting.
This provides a base for gold
The European Central Bank (ECB) will also decide later in the day whether to raise its key interest rate to a record level. EverBank World Markets President Chris Gaffney says that CPI data is largely in line with expectations. He also says the FOMC is expected to keep rates steady, providing a floor for gold. In this context, Gaffney shares the following assessment:
Precious metals investors are less worried about higher inflation. They are also more focused on the opportunity costs of holding a non-interest bearing asset in a rising interest rate environment.
Investors now await US August producer prices and retail sales data. It also focuses on the interest rate hike decision that the ECB will announce on Thursday, ahead of the Fed’s policy decision on September 20.
These developments limit the investment attractiveness of gold
UBS analyst Giovanni Staunovo says calming inflation will keep the Fed “on hold for now.” Staunovo also expects near-term gold prices to be in the range of $1,880 to $1,940. Meanwhile, the Fed will wait until April-June 2024 or later before cutting rates, according to a Reuters poll of economists.
Weakening economic growth prospects in Europe and declining confidence in the Chinese economy are supporting the US dollar’s rise, ANZ analysts said in a note. They state that this limits the investment attractiveness of gold.
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