Gold prices witnessed a significant rise in global markets during Tuesday’s trading, supported by the uncertainty surrounding the plans of US President-elect Donald Trump. This rise also came as a result of investors’ trends awaiting the release of important US inflation data, which is expected to provide additional insights into the Federal Reserve’s policy.
Earlier this week, gold prices fell by about 1% on Monday, after the release of positive data on the US labor market last week. This data strengthened the dollar, making gold more expensive for buyers using other currencies. The rise of the dollar is one of the factors that negatively affects gold prices, as it makes the precious metal less attractive in global markets.
Recent jobs data also reinforced the Federal Reserve’s conservative stance towards cutting interest rates during the current year. Despite this data, there are growing concerns that Trump’s policies related to customs duties may contribute to increasing inflation, which increases demand for gold as a hedge against these inflationary risks.
Gold returns as an inflation hedge
“The reason gold has done so well in the current strong dollar is inflation concerns,” said Tim Waterer, chief market analyst at KCM Trade. “Gold has regained its status as an effective hedge against inflation.” The comments are an indication that gold still retains its appeal as a hedge, although rising interest rates could limit its appeal as a non-yielding asset.
Economic analysis continues to emphasize gold as a safe haven during times of uncertainty, especially when concerns about inflation or deflation are rising. While rising interest rates could temporarily weaken gold, expectations suggest that potential economic crises could boost demand for the yellow metal.
Market Outlook Ahead of US Inflation Data
Global markets await important US inflation data, set for release in the coming days. This data plays a key role in shaping market trends and influencing investor sentiment. It offers fresh insights into the US economy and guides the Federal Reserve’s future monetary policy decisions.
Among the main indicators that investors will focus on are the Producer Price Index (PPI) and Consumer Price Index (CPI) data. These indicators show the extent of the impact of inflation on the prices of goods and services in the US economy.
If the data shows that inflation remains high, the Federal Reserve may continue to adopt a tight monetary policy, such as raising interest rates, in an attempt to reduce inflationary pressures. On the other hand, if the data shows a decline in inflation or a slowdown in its rates, the Fed’s position may change, which may contribute to the decline in the value of the US dollar and increase demand for gold as a safe haven.
The impact of the data on the markets will also depend on investors’ expectations about the Federal Reserve’s next steps. If the data comes out weaker than expected, the US dollar is likely to come under selling pressure, which could support gold prices and increase their attractiveness. On the other hand, if the data comes out stronger, US dollar may continue its upward movements, which would negatively affect gold prices.
Waiting for Federal Reserve officials’ statements
In addition to economic data, investors are looking forward to statements from a number of Federal Reserve officials this week, as they will provide further clarifications on the future direction of monetary policy.
Daily trading of gold prices
During Monday’s trading, gold prices declined, following the rise of the US dollar and US Treasury yields. At the settlement of trading, February gold futures fell by 1.35%, or $36.4, to reach $2,678.60 per ounce.
Despite this decline, spot gold recorded a slight increase of 0.5% to reach $2,674.26 per ounce. Gold futures also rose by 0.4% to $2,689.10 per ounce, reflecting active trading despite market volatility.
The US dollar and other metals
As for the US dollar, it witnessed a slight decline of 0.43% to reach the dollar index to 109.34 points. This decline in the value of the dollar contributed to supporting some other metals, as silver prices rose by 0.3% to reach $29.68 per ounce. Palladium prices also rose by 0.6% to $959.70.
It is noted that all of these metals benefited from the decline in the dollar, reflecting a divergence in trends between various financial assets. While gold, along with other precious metals, continues to benefit from slight declines in the value of the dollar.
Gold is expected to remain in the spotlight in the coming period, especially with the political and economic uncertainty witnessed in global markets. Investors are awaiting what will happen after the release of US inflation data, and whether this data will contribute to reducing pressure on the Federal Reserve to change its monetary policies. If the data shows a slowdown in inflation, we may witness pressure on the US dollar, which will support the attractiveness of gold.
Markets continue to monitor the next steps of the US authorities, especially with the growing concerns about the economic policies of US President-elect Donald Trump. Trump’s expected policies, such as imposing new tariffs, may contribute to increasing inflation, which enhances the role of gold as a hedge against these economic risks.
