Home Economics Gold Prices Inch Up on Soft Dollar Ahead of Key U.S. Inflation...

Gold Prices Inch Up on Soft Dollar Ahead of Key U.S. Inflation Reports

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Vintage camera with paper note on wooden table. Image by jcomp on Freepik
Gold prices inclined on Tuesday as a softer US dollar lent support, while investors awaited a key US inflation report as part of a busier-than-usual week of economic data and central banker commentaries. Spot gold climbed 0.2% to $2,034.08 an ounce as of 0436 GMT, while US gold futures also gained 0.2% to $2,043.60 an ounce.

The moderation of the dollar played a role in backing gold since it made the precious metal cheaper to holders of other currencies. Before the looming release of inflation data, the cautious market mood ensured an anticipated consolidation of gold prices and the possibility of a tight trading band. Ajay Kedia, director at Mumbai-based Kedia Commodities, said that they are ”expecting some kind of consolidation before the inflation number, they expect gold to trade in a very narrow range … and bias to sell on jump.”

Oversold support also emerged through worries about technical recessions in Japan and the UK, Kedia observed. On the other hand, there have been not many geopolitical ‘war premiums’ added to recent prices.

Federal Reserve policymakers have signalled recently that they are not rushing to cut interest rates, while forecasts put odds against cutting rates ahead of June. The app from LSEG where all this data is pulled together is called the interest rate probability app, or IRPR. The bar chart for the 2024 federal funds rate forecasts on IRPR tells us that the market is projecting seven-tenths of a percentage point in cuts next year. The first quarter-point cut could come in June, however, according to where IRPR puts probabilities above 61 percent.

Low interest rates in these environments increase the lure of holding non-yielding bullion; hence, they reinforce gold investment demand.

Ahead, investors await speeches from at least 10 Fed officials this week as well as Thursday’s release of the core personal consumption expenditures price index, the Fed’s favourite inflation gauge. Next week, Congress must reach an agreement on a borrowing extension by Friday, or US government agencies could be forced to shut down.

Moreover, Spot platinum rose by 0.6% to $885.20 an ounce, palladium edged 0.1% up to $951.82, and silver rose 0.2% to $22.56 an ounce, as precious metals posted mixed performances. Both metal bulls and bears search the economic data releases and the geopolitical news headlines for clues on which way interest rates or inflation’s evolution are heading. The jury is still out on the direction those catalysts will take. Even the most devoted gold bugs are keen for signs pointing out which way gold can go.

Source: Sherin Elizabeth Varghese, Reuters February 27, 2024

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