Gold prices found themselves in a holding pattern on Wednesday as investors maintained caution ahead of crucial U.S. inflation data that could provide insights into the Federal Reserve’s stance on monetary policy. This uncertainty has prompted many to stay on the sidelines, waiting for clearer signals before making any significant moves.
As of 09:46 a.m. EDT (1346 GMT), spot gold remained steady at $1,924.39 per ounce after earlier dipping to its lowest point since July 10 during the session. Similarly, U.S. gold futures exhibited little change, hovering at $1,958.50 per ounce.
Daniel Pavilonis, a senior market strategist at RJO Futures, noted the pivotal role that the upcoming Consumer Price Index (CPI) data, set to be released on Thursday, could play in shaping the Federal Reserve’s policy outlook. Pavilonis mentioned, “Tomorrow’s CPI will be a pivot point for Fed policy… It’s kind of wait and see mode now.”
Gold has traditionally served as an inflation hedge, but the precious metal is currently facing resistance due to the strong performance of the 10-year yield. The outcome of inflation data and the potential for rapid rate hikes by the Fed are expected to influence gold’s performance in the near term.
Market expectations point to a slight acceleration in July’s annual inflation rate to 3.3%. However, most traders anticipate no change from the Federal Reserve’s policy meeting in September. The probability of a quarter-point rate increase is assessed at just 13.5%, according to the CME’s FedWatch Tool.
Baden Moore, head of carbon and commodity strategy at National Australia Bank, highlighted the importance of increased certainty around U.S. rate cuts in 2024 for a sustained recovery in the gold market. Lower interest rates tend to bolster gold by reducing the opportunity cost of holding non-yielding assets and weakening the dollar.
In a silver lining for gold, the dollar exhibited a 0.1% decline against its counterparts following reports of China’s economy slipping into deflation the previous month. This development raised hopes for additional stimulus measures, offering a brief respite to the precious metal.
In other precious metals, spot silver experienced a slight decline of 0.2% to reach $22.72 per ounce, while platinum dipped 0.9% to $892.58. On the contrary, palladium showed strength with a gain of 1.2% to reach $1,234.72 per ounce.
The gold market remains in a state of anticipation as market participants closely monitor U.S. inflation data and the Federal Reserve’s subsequent actions, seeking clarity amidst the complex web of economic variables.