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Gold price expectations amid data surprises and stubborn inflation

Today's market analysis on behalf of Rania Gule Market Analyst at XS.com

 

March 15, 2024 (Investorideas.com Newswire) The price of gold (XAU/USD) came under some selling pressure yesterday, dropping once again near the weekly low of $2155 before starting today's Friday trading at $2165.25. This was in response to higher-than-expected U.S. Producer Price Index (PPI) figures. The data indicated that inflation remains stubborn, and market expectations for early interest rate cuts by the Fed have diminished. This led to a fresh rise in U.S. Treasury bond yields and supported the U.S. dollar, thus pulling liquidity away from the non-yielding yellow metal.

However, markets still anticipate and price in interest rate cuts to begin in June. This modestly supported the gold price back above $2150 today, but it remains range-bound amid investors' quest for further clarity on the interest rate-cutting path before establishing new positions. The focus now shifts to the Federal Open Market Committee (FOMC) meeting data next week.

I believe markets are now beginning to price in the Fed's less dovish stance following the higher-than-expected Producer Price Index (PPI) report. Meanwhile, U.S. stocks ended yesterday's trading session with noticeable losses. Concurrently, U.S. retail sales figures showed that the U.S. economy remains resilient, while initial jobless claims fell below previous numbers and estimates.

From my perspective, uncertainty about the future of the U.S. central bank's policy has prompted investors to lower their expectations for a June interest rate cut. Consequently, the yellow metal is moving downwards, with the yield on 10-year U.S. Treasury bonds rising by ten basis points from 4.19% to 4.29%, and the U.S. Dollar Index (DXY) increasing by 0.54% to 103.33.

Given that readings of both U.S. consumer and producer price indices show a pickup in stubborn inflation, Federal Reserve policymakers will likely refrain from easing monetary policy during next week's meeting.

During his testimony last week before the U.S. Congress, Federal Reserve Chairman Jerome Powell stated that inflation is easing while affirming the possibility of policy easing in late 2024. He emphasized that this would depend on incoming data reassuring the Fed that inflation is moving sustainably towards the Federal Reserve's 2% target. The next Fed meeting is scheduled for March 19-20, with market focus expected to be significant, potentially constraining price movements during the beginning of next week.

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