TLDR:
- Gold prices rise due to expectations of a 25bps Fed rate cut amid sticky U.S. inflation data
- Analysts predict gold prices may hold around $2,500 per ounce
- U.S. Treasury yields climb slightly, potentially limiting gold’s upside
- ECB expected to announce a 25bps rate cut, potentially impacting gold through currency effects
- Gold retreats from $2,529 high after U.S. inflation data, trading at $2,511
Gold prices experienced volatility on Thursday as investors processed the latest U.S. inflation data and adjusted their expectations for upcoming Federal Reserve and European Central Bank rate decisions.
The precious metal initially rose to a high of $2,529 per ounce before retreating to $2,511, influenced by a complex interplay of economic factors and monetary policy anticipation.
The U.S. Bureau of Labor Statistics released August’s Consumer Price Index (CPI) data, showing that headline inflation dipped to 2.5% year-over-year from 2.9%, slightly below the expected 2.6%.
However, core CPI, which excludes volatile items and is considered a more accurate gauge of inflation, remained unchanged at 3.2% year-over-year. On a monthly basis, core CPI rose from 0.2% to 0.3%, while headline CPI stood at 0.2% month-over-month.
These figures have led traders to recalibrate their expectations for the Federal Reserve’s upcoming rate decision.
The CME FedWatch Tool now shows a 71% chance of a 25 basis point cut, with the odds of a larger 50 basis point cut decreasing to 29%. This shift in expectations has put pressure on gold prices, as lower interest rates typically support the non-yielding metal.
Carsten Menke, an analyst from Julius Baer, commented on the situation, saying,
“Gold’s reaction to inflation data suggests that expectations for lower rates are enough to keep prices around $2,500 per ounce in the short term.”
This assessment aligns with the current trading range observed in the market.
U.S. Treasury yields also played a role in gold’s price movement. The yield on the 10-year Treasury note rose to 3.655%, up by one and a half basis points.
This increase in yields could potentially limit gold’s upside, as rising bond yields often compete with gold as a safe-haven investment.
In the currency markets, the U.S. Dollar Index (DXY) reached a daily high of 101.82 before settling around 101.68. The strength of the dollar can influence gold prices, as a stronger dollar typically makes gold more expensive for holders of other currencies.
Meanwhile, the European Central Bank (ECB) is expected to announce its own 25 basis point rate cut, which would mark its second reduction this year. This decision could indirectly affect gold prices through its impact on the Euro and U.S. Dollar exchange rates.
A weaker Euro, driven by easing in the Eurozone, could strengthen the U.S. Dollar, potentially applying downward pressure on gold prices.
Traders are now looking toward additional U.S. economic data expected this week for further guidance. The U.S. Producer Price Index (PPI) report, initial jobless claims data, and consumer sentiment reports will be closely watched for more signals on inflation and economic conditions.
The PPI, which measures wholesale inflation, is expected to show a 0.2% increase for August.
From a technical perspective, gold’s price remains consolidated within the $2,500 to $2,531 range.
The Relative Strength Index (RSI) indicates that momentum is still bullish but flat above its neutral line, suggesting that neither buyers nor sellers have taken control of the market direction.
