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Gold price soars as Fed sees inflation declining in longer term

February 20, 2024

NEW YORK (February 20) Gold price (XAU/USD) extends its bullish streak for the fourth straight trading session on Tuesday. The outlook for the precious metal has strengthened as commentary from Federal Reserve (Fed) policymakers that inflation is broadly moving in the right direction has faded the impact of stubborn Consumer Price Index (CPI) and Producer Price Index (PPI) data for January.

The confidence of Fed policymakers that inflation is declining over the long term has trimmed the opportunity cost of holding non-yielding assets such as Gold. Meanwhile, investors await the Federal Reserve Open Market Committee (FOMC) minutes for the first monetary policy meeting of 2024. The FOMC minutes will provide cues about the timing of three rate-cuts, as forecasted by the Fed.

On the economic data front, preliminary S&P Global PMI data for February will guide the forward action in the Gold price and the US Dollar, which will be published on Thursday. The US Manufacturing PMI is expected to exceed the 50.0 threshold for the second straight month at 50.5. An upbeat factory data would have a negative impact on the Gold price.

Daily Digest Market Movers: Gold price jumps higher ahead of FOMC minutes

  • Gold price continues to generate gains and extend the upside above a four-day high of around $2,023.
  • The upside in the precious metal seems restricted amid persistent fears of higher for longer interest rates by the Federal Reserve due to stubborn inflation data.
  • The United States core inflation data is almost double the required rate of 2%, easing hopes of rate cuts by the Fed before June.
  • The CME FedWatch tool shows that traders are confident that interest rates will remain unchanged in the range of 5.25%-5.50% till the May monetary policy meeting. For the June meeting, chances for a 25 basis points (bps) rate cut stand at 53%.
  • While investors have significantly lowered their bets for rate cuts after stubborn consumer and producer price inflation data for January, Fed policymakers see the one-time high inflation as insignificant.
  • Fed policymakers believe the longer-run inflation trend is declining, and overly focusing on a one-time blip could be a tremendous mistake.
  • The US Dollar Index, which measures the value of the Greenback against six major currencies, is confined in a tight range around 104.20 as investors await the FOMC minutes for the January policy meeting, which will be released on Wednesday.
  • The FOMC minutes will deeply explain the maintenance of interest rates at their current level for the fourth time in a row. 
  • In the monetary policy statement, Fed Chair Jerome Powell said a continuation of good data is required to reduce borrowing rates. Good data means easing price pressures.
  • Meanwhile, 10-year US Treasury yields, which reflect expectations for Fed policy, are slightly up to near 4.30%.


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