Gold under pressure as it heads for third straight week of historic gains as inflation sticks
Today's market analysis on behalf of Samer Hasn, Senior Market Analyst at XS.com
August 30, 2024 (Investorideas.com Newswire) Gold is set to hold steady today with some bearish bias preventing it from holding above $2,520 per ounce in spot prices.
The pressure on gold comes from the stickiness shown by inflation in the July reading of the Fed's preferred measure, which came in at the same number as the previous reading. Also, the recovery in Treasury yields for the fifth consecutive day is helping to cap the yellow metal's gains.
In contrast, the successive military escalation in the Middle East and the lack of a solution to the Gaza conflict in sight are fueling the bullish momentum for the safe haven.
In today's data, the core Personal Consumption Expenditures Price Index (core PCE) annual reading held steady at 2.6%, contrary to expectations for inflation to accelerate to 2.7%. Inflation by this measure continued to grow by 0.2% on a monthly basis for the second month in a row, in line with expectations, and services prices also rose by 0.2%.
The size of today's surprise did not seem to change the current hypothesis in the market about the path of interest rates this year, and Treasury yields continued to rise, which may explain the decline in gold after the data was released.
Markets are still pricing in a 70% chance of a 25-basis point cut in September, with a 45% chance of a rate cut to the 425-450 range, a full percentage point lower than the current range, according to the CME FedWatch Tool.
In the Middle East, negotiations that took place this week and concluded yesterday for a ceasefire in Gaza did not achieve a breakthrough. The thorny issues related to a permanent ceasefire and Israel's withdrawal from the border corridors have not yet been resolved, according to Axios.
The extension of the war in Gaza means more potential escalation in the entire region. This is what we have seen in recent days, whether from the violent exchange of attacks between Hezbollah and Israel on Sunday, the attack on an oil tanker in the Red Sea, or the ignition of a new front in the West Bank.
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