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Gold price falls on backfoot amid uncertainty over US Inflation data

February 12, 2024

LONDON (February 12) Gold price (XAU/USD) faces a sharp sell-off in Monday’s London session ahead of the United States Consumer Price Index (CPI) data for January. In addition, major Asian markets are closed on Monday due to the Chinese New Year. 

The precious metal remains on edge ahead of US inflation data for January, which may impact the outlook on interest rates. The opportunity cost of holding non-yielding assets, such as Gold, increases if inflation remains stubbornly high as it increases the odds of a hawkish stance from the Federal Reserve (Fed).

Fed policymakers have maintained arguments in favor of higher interest rates for longer until they get confidence that the underlying inflation will sustainably return to the 2% target. The reasoning behind the Fed’s hawkish narrative is the resilient labor market and robust household spending. Fed policymakers have admitted that the inflation data decline is encouraging but is insufficient to unwind the tight interest rate stance. 

Daily Digest Market Movers: Gold price comes under pressure in a holiday-thinned trade

  • Gold price drops sharply to near $2,020 despite a holiday-thinned trade as major Asian markets such as China, Hong Kong, Japan, South Korea, and Singapore are closed. 
  • The precious metal is expected to continue with a sideways trend as investors await the United States inflation data for January, which will provide fresh guidance on interest rates.
  • The CME FedWatch tool shows that traders see a 53% chance that a rate cut by 25 basis points (bps) could be announced in May.
  • According to the expectations, monthly headline inflation is expected to grow at 0.2% in January versus 0.2% in December (revised down from 0.3% initial estimate). In the same period, the core inflation that strips off volatile food and Oil prices is expected to show a rise of 0.3%.
  • For annual data, investors anticipate that the headline inflation softened significantly to 3.0% from 3.4% in December. While the core CPI decelerated slightly to 3.8% against the prior reading of 3.9%.
  • A stubborn inflation data would allow Federal Reserve policymakers to strongly argue in favor of keeping interest rates higher for a longer period.
  • Fed policymakers have been reiterating the need for good inflation data for months to ensure inflation sustainably declining towards the 2% target.
  • Dallas Federal Reserve Bank President Lorie Logan said on Friday that there is no need to rush for rate cuts as she wants to confirm durability in progressively declining inflation.
  • Meanwhile, the US Dollar Index (DXY) delivers a sharp recovery from the crucial support of 104.00 as investors turn cautious ahead of the US inflation data. The appeal for safe-haven assets improves amid a cautious market mood.


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