Gold Rises Ahead of Inflation Data… But Prices Could Drop to $2,300!
Gold prices turned higher during today’s Wednesday trading as investors await the key U.S. inflation report scheduled for later today, which could provide further signals regarding the future of monetary policy in the United States.
The U.S. Consumer Price Index (CPI) data for July is set to be released at 3:30 PM Riyadh time. It is expected to show a monthly inflation increase of 0.2%, with the annual basis slowing slightly to 3.2%. Retail sales data is scheduled to be released on Thursday.
Data on Tuesday showed that the U.S. Producer Price Index (PPI) rose less than expected in July, reinforcing the market’s view that slowing inflation will allow the Federal Reserve to cut interest rates soon.
Atlanta Fed President Raphael Bostic said he wants to see “more data” before he’s ready to support cutting interest rates.
Gold is often used as a hedge against geopolitical risks and thrives when interest rates are low.
Gold and the Dollar Now Gold futures are currently up 0.07% to $2,510 per ounce.
Meanwhile, spot gold has risen by about 0.23% to $2,470 per ounce.
On the other hand, the dollar index is up 0.04% to 102.41 points.
Other Metals Silver in spot transactions fell 0.4% to $27.73 per ounce, while platinum dropped 0.5% to $931.50 per ounce.
Palladium rose 0.3% to $941.00 per ounce after reaching its highest level since July 24th in the previous session.
Key Federal Reserve Remarks: The Worst-Case Scenario for Interest Rates
Atlanta Fed President Raphael Bostic stated on Tuesday that he expects the Federal Reserve to cut interest rates by the end of the year if inflation continues to slow, but he remains cautious about cutting rates too early, calling for “more data” to reduce the risk of the Fed having to reverse course if inflation unexpectedly rises.
Bostic said, “If the economy evolves as I expect, there will be a rate cut by the end of the year,” adding that the Fed needs to “see more data” to ensure that the inflation trend is real.
The Atlanta Fed President also said, “It would be really bad if we cut rates and then had to raise them again.”
Bostic’s comments followed slower-than-expected producer inflation in July, with attention now focused on the CPI data due on Wednesday.
Earlier data on Tuesday showed that the PPI rose 0.1% month-on-month in July, compared to the 0.2% increase expected by economists. On a yearly basis, it rose to 2.2%, compared to estimates of 2.3%.
Bostic downplayed recession fears, noting there was no significant incentive to rush to cut interest rates, saying the labor market is “strong” and could slow down but “without significant concern.”
Key U.S. Inflation Data Expectations and How Markets Will React
Investors today are eagerly awaiting the data that will shape the future path of the Federal Reserve’s interest rate policy, specifically the July CPI data.
The report, set to be released at 3:30 PM Riyadh time on Wednesday, is expected to show a headline inflation rate of 3.0%, unchanged from June.
Consumer prices are expected to rise by 0.2% in the previous month, up from a 0.1% decline the previous month, with energy prices largely expected to rise again.
Core inflation, which excludes the more volatile costs of food and gas, is expected to show a 3.2% increase in July from a year ago, a slowdown from the 3.3% annual increase seen in June. However, monthly core prices are expected to rise 0.2%, compared to the 0.1% increase in June, according to data from Investing Saudi Arabia.
June’s data marked the first time since May 2020 that the monthly CPI was negative. It was also the slowest annual price increase since March 2021.
Bank of America economist Michael Gapen wrote in a note that while July inflation data is unlikely to be as low as June, it aligns with the previous trend of disinflation and is expected to meet the Federal Reserve’s requirements to begin cutting interest rates in September.
Core inflation has remained notably high due to rising shelter costs and essential services such as insurance and medical care.
Shelter prices are expected to reflect June’s slowdown after the rent index saw the smallest monthly increases since August 2021.
Non-housing services also fell in June, “due to a significant drop in airfares. However, the decline in airfares is expected to be more moderate in July,” as noted by Gapen of Bank of America.
Should Interest Rates Be Cut or Not? Ahead of Wednesday, the PPI showed a smaller-than-expected increase in July, reinforcing the idea of a rate cut by the Federal Reserve at its upcoming September meeting.
Producer prices in the U.S., a key measure of wholesale inflation and often a sign of consumer price trends, rose by just 0.1% month-on-month last month after a 0.2% increase in June. The pace was below economists’ expectations. The index rose 2.2% year-on-year, slightly above the Fed’s inflation target of 2%.
“It’s positive for stocks,” said John Stoltzfus, chief investment strategist at Oppenheimer, in a morning brief to Yahoo Finance on Tuesday. He confirmed, “It dispels some of the grim sentiment that has dominated the market earlier this month. We can’t help but think this gives the Fed room to start cutting rates.”
Inflation has remained above the Fed’s 2% annual target. But recent economic data, including the July jobs report that sparked a sell-off, has helped fuel the narrative that the central bank should cut interest rates sooner rather than later.
Notably, the Fed’s preferred inflation gauge, the so-called core Personal Consumption Expenditures Price Index, showed that inflation in June was unchanged from the previous month and represented the slowest annual increase in core PCE in more than three years.
