Gold traders are adopting a cautious approach as they digest the latest US Consumer Price Index (CPI) data released on Wednesday. The data has tempered expectations for a significant interest rate cut by the Federal Reserve (Fed) in their upcoming meeting.
According to the US Bureau of Labor Statistics (BLS), the CPI for August increased by 0.2% month-over-month, meeting expectations. However, the core CPI, which excludes food and energy, rose by 0.3% month-over-month, exceeding the anticipated 0.2%. The annual headline CPI edged down slightly to 2.5% from 2.6%, while the core CPI remained steady at 3.2%, matching forecasts.
Although the annual CPI figure showed some cooling, the persistent strength in monthly and yearly core inflation figures has led markets to reassess the likelihood of a substantial Fed rate cut. Current market expectations, as reflected by the CME Group’s FedWatch tool, suggest an 85% probability of a 25 basis point rate reduction, up from 71% before the data was released.
In response to the inflation figures, gold prices tested the critical resistance level of $2,530 before experiencing a sharp decline. This drop was accompanied by a rebound in the US Dollar and US Treasury bond yields. Despite the retreat, gold has managed to maintain its position above the crucial short-term support level of $2,505, staying within its three-week consolidation range.
In Thursday’s trading, gold buyers have attempted to regain control, though their efforts have been tempered by ongoing US Dollar strength and a generally positive market sentiment. Nevertheless, gold could find support from gains in other precious and industrial metals, such as Palladium and Nickel, especially with potential export restrictions being considered by Russia.
Traders are also awaiting a new set of high-profile US economic data scheduled for later Thursday, which could provide further insights into the Fed’s policy direction and influence both the US Dollar and gold prices.
