July 12, 2024
New Delhi, India
Gold Price(XAU/USD) Analysis
Gold prices experienced a pullback on Friday after a significant surge on Thursday, driven by unexpected US inflation data. This article explores the factors behind gold’s recent movements, including the implications of cooling inflation and the potential for Federal Reserve interest rate cuts.
Gold’s Reaction to US Inflation Data
Gold (XAU/USD) saw a substantial rally on Thursday, reaching above $2,400, following the release of US Consumer Price Index (CPI) data for June, which indicated a slowdown in inflation. This data led to increased speculation that the Federal Reserve might cut interest rates sooner than anticipated, enhancing the appeal of non-interest-bearing assets like gold.
Read: June CPI Report Sparks Speculation of September Rate Cut
Cooling Inflation Fuels Rate Cut Expectations
The June CPI data revealed a year-on-year inflation rate of 3.0%, below the expected 3.1% and a drop from the previous month’s 3.3%. On a monthly basis, CPI decreased by 0.1%, marking the largest drop since May 2020. Core CPI, excluding volatile food and energy prices, also slowed to 3.3%, slightly below the expected 3.4%.
These figures suggest that inflation is cooling, which could prompt the Federal Reserve to consider rate cuts. Markets are now pricing in a 0.25% cut in the Fed Funds rate by September and over 0.60% in cuts by the end of the year. This speculation makes gold more attractive by reducing the opportunity cost of holding the non-yielding metal.
Market Dynamics and Gold’s Pullback
Despite Thursday’s strong performance, gold pulled back by nearly half a percent on Friday, trading just above $2,400 during the European session. This decline is attributed to short-term profit-taking and a reassessment of Thursday’s exuberance.
Fed’s Stance and Employment Concerns
In his testimony to Congress, Fed Chair Jerome Powell highlighted that while progress has been made in cooling inflation, the central bank remains cautious. Powell indicated that it might not be necessary to wait until inflation hits the 2.0% target before considering rate cuts, noting the momentum of inflation and concerns about the employment market. The unemployment rate rose to 4.1% in June, which Powell described as a significant concern.
Closure
Gold’s recent price movements reflect a complex interplay of inflation data, Federal Reserve policy expectations, and broader market dynamics. As investors digest these developments, the future direction of gold prices will likely be influenced by further economic data and Fed communications.
At the time of writing this news, Gold Price(XAU/USD) was doing at 2,402.845USD down −12.530 (−0.52%)
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