Gold hitting two-weeks high ahead of key U.S. inflation data
On Tuesday, the market’s focus turned to Wednesday’s U.S. inflation data, but growing geopolitical tensions and anticipation of a third rate decrease by the Federal Reserve next week supported gold prices, which hit a two-week high.
At $2,692.32/oz, spot gold was up 1.3%. Trading ended at $2,718.40, a 1.2% increase, for U.S. gold futures. “Safe haven bids are being driven by concerns of heightened tensions in the Middle East,” stated Peter Grant, VP and senior strategist for metals at Zaner Metals. It’s “also a kind of renewed focus on the global easing trend – we’ll see the Bank of Canada cut rates, ECB and SNB later this week, and the Fed most likely next week.”
The Federal Reserve’s rate-cut decisions will be heavily influenced by two key economic indicators, the Producer Price Index (PPI) on Thursday and the U.S. Consumer Price Index (CPI) on Wednesday. A Reuters poll predicts a 0.3% increase for November.
If the CPI number comes in near what was expected, the impact on gold will be minimal. According to Forex.com market expert Fawad Razaqzada, “the odds of rate cuts in early 2025 will be further reduced” if the CPI report is hot.
After two rate cuts this year, the CME FedWatch tool indicates that traders are 86% expecting the Fed to drop rates by another 25 basis points at their meeting on December 17th and 18th.
In times of economic and geopolitical uncertainty, as well as when interest rates are low, gold is seen as a safe haven investment. Meanwhile, the Politburo was cited on Monday as saying that China will implement a more proactive fiscal strategy and monetary policy that is “appropriately loose” in 2019.
“Any big announcements should give gold a boost since China is the largest consumer nation, and especially ahead of the Lunar New Year celebrations when jewelery demand for gift-giving rises,” said Razaqzada. While palladium fell 0.4% to $969.52, spot silver gained 0.7% to $32.04/oz, and platinum gained 0.5% to $940.90.
