US inflation data: a killjoy for gold

For weeks, the gold price had remained above the 2,000 US$ per ounce mark, mostly around US$ 2,030 – despite the fact that yields on US government bonds had risen significantly since the start of the year and the US dollar had also appreciated early in January. Both of these factors would normally have a negative impact on gold prices.

Tuesday’s publication of US consumer price development in January, however, ultimately had a massive impact on financial market movement. Inflationary pressure in the US is more persistent than earlier expected by analysts. On average, they had anticipated inflation to drop from 3.4 per cent in December to 2.9 per cent in January. Instead, consumer prices rose by 3.1 per cent year-on-year.

From the perspective of the financial markets, however, the fact that the core inflation rate adjusted for energy and food prices remained at 3.9 per cent instead of falling by 0.2 percentage points as forecast is likely to be more decisive. This data had a direct impact on the futures markets’ priced-in probabilities for a Fed interest rate turnaround.

Fed dampens expectations for interest rate cuts

Instead of the previously priced-in six key interest rate cuts of 0.25 percentage points each, the interest rate markets are now only expecting around four in 2024. While the interest rate futures markets had long assumed that the first rate cut would happen at the March meeting, these expectations have, since the January inflation data was announced, refocussed on the June meeting. Yields on US Treasuries rose by more than 0.15 percentage points on Tuesday, particularly in short to medium-term maturities. The US dollar also felt a tailwind and appreciated by around one cent against the euro. The stock markets and gold, on the other hand, came under pressure.

Gold in US dollars drops below 2,000 mark

Last Friday, gold traded at 2,056 US$ per ounce in the morning and traded more or less indecisively sideways around 2,020/2,040 over the following days, as hardly any market-moving data was published. It started to weaken after the above-mentioned US inflation data was published, from 2,030 to 1,990 US$ intraday and a further US$5 to 1,985 on Wednesday. For the first time since the beginning of the year, gold had therefore dipped below the 2,000 US$ per ounce mark.

Xetra-Gold slides to under 60 € per gram

The Xetra-Gold price also felt the headwind, albeit mitigated by the somewhat weaker euro/US dollar exchange rate. From 60.75 € per gram last Friday morning and 61.00 in the middle of last week, it had weakened slightly by the end of last week. Following the publication of US inflation data, Xetra-Gold went from 60.60 to 59.55 € per gram yesterday afternoon.

Data on US retail sales is scheduled for publication later this afternoon and further potentially market-moving economic data will be out on Friday. For the US, it is Presidents’ Day on Monday, while China returns from its New Year’s celebrations. The markets will continue to keep an eye on any data that might impact the Fed’s monetary policy.

I wish all our readers a pleasant, early spring weekend.