Gold draws some buyers even though it finds it difficult to profit from the increase.
Although there is little follow through, the gold price (XAUUSD) on Tuesday. Attracts new offers and pulls away from a nearly three week low that was struck the day before, in the $2,017 $2,016 range. A decline in US Consumer Inflation expectations raises anticipation of an impending change in the Federal Reserve’s (Fed) position on policy. Which is then seen to be a major driver supporting the non-yielding metallic yellow.
A decline in consumer inflation forecasts strengthens the case for a rate cut by the Fed and weakens the buck.
Nevertheless, the positive US monthly jobs data that was made public last Friday indicated that the labor market is still strong and that the Fed should continue raising interest rates. Furthermore, investors were obliged to lower their expectations for a more aggressive policy easing due to the hawkish remarks made by a few Fed officials, which resulted in a new leg up in the yields on US Treasury bonds. This stabilizes the US dollar (USD) and sets a ceiling on the price of gold.
In addition, bulls are deterred from making aggressive wagers on the safe haven XAUUSD pair. By a consistent performance in the equities markets. Additionally, investors appear hesitant and would rather wait for the latest US consumer inflation data. Which are scheduled to be released on Thursday, to indications on the Fed’s upcoming policy decision, which will be crucial in figuring out the gold price’s short-term trajectory.
Daily Market Movers: Despite a negative fundamental environment, the price of gold continues to rise modestly.
In a study released on Monday, the New York Federal Reserve stated that US consumers’ short term inflation projections dropped. To their lowest point in over three years in December. This weakens the US dollar and raises the price of gold.
A year from now, inflation is predicted to be 3%, the lowest level since January 2021; three years from now, inflation is predicted to be 2.6%; and five years from now, price pressure was 2.5% as opposed to 2.7% in November.
The information confirms predictions for an upcoming change in the Federal Reserve’s policy stance. Even though investors are still lowering their expectations for a more aggressive policy easing following the US economy’s continued resilience.
The president of the Atlanta Fed, Raphael Bostic, observed that although inflation has decreased more than anticipated. The US central bank still has to allow strict policy time to take effect. By the end of 2024, Bostic anticipates two 25 bps cuts.
Fed Governor Michelle Bowman stated that although there are still dangers associated with upside inflation. The current policy stance appears to be sufficiently restrictive. And that inflation could decrease further if the policy rate is held stable for a while.
This casts doubt on the likelihood of an early rate cut by the Fed. Which would help the yield on the benchmark 10-year US government bonds. May cap the non yielding yellow metal and remain stable over the 4.0% barrier.
A positive risk tone and Elevated US bond yields limit gains ahead of Thursday’s US CPI.
The US Consumer Inflation data, which are expected to be released on Thursday, will continue. To be the center of attention for the market and could provide clues as to where the XAUUSD pair will go next.
