Global gold prices witnessed a significant increase in Wednesday’s trading, after investors decided to take advantage of the sharp declines in prices in the previous session. This rise comes at a time when attention is focused on US inflation data, which may provide more clarity on the monetary policy that the Federal Reserve will follow.
Buying dips supports gold prices
The chief market analyst for the Asia-Pacific region said that there is currently a significant demand for gold due to its price falling below the $2,600 level. Wong added that traders trying to take advantage of these declines have contributed to raising prices again. It seems that the market has begun to move towards exploiting this opportunity, in an attempt to compensate for the losses, it incurred in the past period.
On the other hand, markets continue to monitor developments in the global economic situation, as attention turns to the impact of the strength of the dollar on gold prices. The US dollar has witnessed a rise in the recent period, which negatively affected the prices of the yellow metal. Analysts expect these forces to continue to influence gold in the coming days, especially with the results of US inflation data.
US Inflation and its Impact on Gold
In this context, investors are awaiting upcoming data on inflation in the United States, which may provide signals about future monetary policy. If inflation rates rise more than expected, tighter monetary policies may be resorted to by the Federal Reserve, which may push gold to higher levels. On the other hand, if inflation declines or stabilizes at low rates, gold may witness downward pressure, as investors may believe that the Federal Reserve will avoid raising interest rates significantly.
Gold under the influence of interest rate cut expectations and US inflation data
Traders are expecting a 58.7% chance of a 25 basis point rate cut at the Federal Reserve’s December meeting, according to the US interest rate tracker available on Investing Saudi Arabia. This figure compares to 77.3% last week, reflecting a decline in expectations for a sharp rate cut in the near future.
Rising interest rates weigh on gold’s appeal
Investors consider gold one of the most prominent means of hedging against inflation, resorting to it to preserve the value of their money during times of economic turmoil. However, gold faces significant challenges when interest rates rise. When interest rates rise, gold’s appeal decreases because it does not generate fixed returns, which makes investors turn to assets that offer higher returns such as bonds and stocks. Consequently, gold is subject to downward pressure as interest rates rise.
The impact of inflation data on the price of gold
Markets await the release of the Consumer Price Index (CPI) data in the United States, scheduled for announcement at 16:30 Riyadh time. If the data shows that inflation remains under control, gold could see an increase in value, as it may test the $2,650 level, as noted by senior market analyst Kelvin Wong. On the other hand, if the data shows that inflation remains high, this could lead to an escalation of the Federal Reserve’s interest rate hike policy, which could negatively affect gold.
Potential market volatility due to inflation data
Inflation data is one of the most important economic indicators that markets are generally awaiting, as it directly affects the decisions of the US central bank. If the CPI data shows significant growth in prices, this could increase the chances of raising interest rates in the future, which would lead to further pressure on gold.
Other economic data that markets are watching
ANZ Bank said in a note: “Trump’s plans to continue tax cuts beyond 2025 and increase spending are likely to worsen the US fiscal position, which could pave the way for macroeconomic policy adjustments that support gold.”
Alongside the CPI, producer price index (PPI) and weekly jobless claims are due on Thursday. Retail sales are also expected on Friday, which will give investors additional clues about the US economic situation. All of these data could indirectly impact financial markets, including gold.
Meanwhile, traders are awaiting comments from Federal Reserve Chairman Jerome Powell and other US central bank officials. If officials discuss inflation or monetary policy developments, their comments can significantly impact gold prices, which closely follow future interest rate trends.
Other Metals
Spot silver rose 1% to $31, platinum added 0.6% to $953.22, while palladium rose 1% to $953.84.
Gold Outlook
With these market shifts, investors are waiting to see what the economic developments will be like. If inflation continues to rise, it could lead to increases in gold prices, as the yellow metal is considered a safe haven in times of economic turmoil. On the other hand, any decline in inflation or tightening of monetary policy could lead to a decline in gold prices.
Despite the mixed expectations, gold remains a preferred option for investors seeking to preserve the value of their money in times of economic crisis. As the market awaits the announcement of inflation data, gold is witnessing an increase in demand for it, driven by the decline in prices in previous sessions.
