Gold rises by 1%, approaching a nearly two-month high ahead of the US CPI report
Gold prices increased by over 1% on Wednesday, buoyed by diminishing expectations of a Federal Reserve rate hike in the upcoming month. This rise comes as market participants looked forward to key U.S. inflation data, which is expected to provide insights into the central bank’s prospective policy trajectory.
What's happening: Gold prices experienced a minor drop this morning yet remained close to their one-week high after a recent rise driven by US inflation data.
What happened: Spot gold increased by approximately 1% on Wednesday as the Consumer Price Index (CPI) report for July met forecasts.
Ongoing tensions in the Strait of Hormuz, coupled with China’s central bank purchasing gold, also contributed to supporting the yellow metal.
Gold prices rose by more than 1% on Wednesday
Spot gold increased by 1.1% to reach $4,413.69 per ounce by 1045 GMT. Meanwhile, U.S. gold futures set for December delivery went up by 0.7% to $4,473.10 per ounce.
On Tuesday, bullion reached its peak since June 5 but fell back after encountering resistance at its 100-day moving average of approximately $4,387 an ounce, marking only the second time this month it has declined.
Following weaker U.S. payroll figures, the spotlight has shifted to U.S. inflation, noted UBS analyst Giovanni Staunovo. A lower inflation reading could lead the market to dismiss further U.S. rate cuts and bolster gold prices. However, persistently high U.S. gasoline prices might limit gains in the near term, with Federal Reserve officials likely maintaining a hawkish stance.
Economists in a Reuters survey predicted that the Consumer Price Index (CPI) bounced back by 0.1% last month, following a 0.4% decrease in June.
Traders now estimate a 48% likelihood of an interest rate hike in September, down from 60% prior to the jobs report, as shown by the CME FedWatch Tool.
The forthcoming U.S. consumer price index data could significantly influence interest rate expectations.
Chicago Fed President Austan Goolsbee expressed greater concern over high inflation rather than potential weaknesses in the labor market.
Last Friday, gold posted its strongest weekly performance since January, boosted by softer-than-anticipated employment numbers that led traders to reassess U.S. rate-hike probabilities.
Lower interest rates tend to support gold as it does not produce any yield
Oil prices continued their upward trend on Wednesday following attacks on two ships that heightened fears about disruptions in Middle East supplies, with Iran asserting that the Strait of Hormuz would stay closed unless the U.S. meets its conditions.
Gold has recently diverged from oil, supported by increased ETF inflows and strong demand from China and central banks, added Staunovo.
In other metals, spot silver increased by 2.5% to $66.26 per ounce after reaching levels not seen since June 22 on Tuesday. Platinum climbed by 1.3% to $1,767.70, while palladium rose by 2.1% to $1,389.
Gold Prices
Investors are set to focus on the release of the US producer price index and the weekly jobless claims, both scheduled for release today at 16:30 UAE Time.
Producer prices are anticipated to increase by 0.2% in July, recovering from a 0.3% drop in June, while core producer prices are projected to rise by 0.3%. Analysts predict jobless claims will be at 202,000, a slight increase from the previous week's figure of 199,000.