Gold experienced a modest decline, slipping to levels not seen in over two weeks on Tuesday. This downtrend came as the U.S. dollar staged a resurgence, with investors taking a cautious stance in anticipation of the forthcoming U.S. inflation data set to be unveiled on Wednesday.
The spot gold market saw a 0.6% dip, bringing the precious metal’s price to $1,909.50 per ounce, marking its lowest point since August 25th. Simultaneously, U.S. gold futures experienced an 0.8% drop, settling at $1,932.60.
Bob Haberkorn, a seasoned market strategist at RJO Futures, commented on the situation, noting, “Investors are exiting the market temporarily, adopting a wait-and-see approach until the data is released. They may be eyeing the opportunity to purchase gold at a more favorable price due to the ongoing interest in gold as a safe-haven asset.”
The strengthening of the dollar index by 0.3% heightened the cost of gold for holders of other currencies. This development occurred just ahead of the release of the U.S. consumer price index data, which carries the potential to influence the Federal Reserve’s forthcoming interest rate decision.
In August, headline U.S. inflation saw a 0.6% increase, as indicated by a Reuters poll, in contrast to the 0.2% rise recorded the previous month. However, the New York Fed reported that Americans’ overall perception of inflation remained relatively stable throughout August.
It’s worth noting that higher interest rates tend to diminish the allure of non-yielding assets such as gold. Currently, traders are placing their bets on a roughly 47% likelihood of an interest rate hike in November, following the widely anticipated pause by the Federal Reserve next week, according to the CME FedWatch tool.
FXTM’s senior research analyst, Lukman Otunuga, shared insights on the situation, stating, “If the inflation figures surpass market expectations, it’s probable that gold prices will depreciate, as expectations will mount regarding the Fed’s capacity to execute a single interest rate hike within the year.”
In addition to the U.S. economic landscape, traders are also eagerly awaiting the European Central Bank’s rate decision scheduled for Thursday. There is a bit more than a 50% chance of a rate hike during this week’s policy meeting, as indicated by the pricing of ECB euro short-term rate (ESTR) forwards.
Harshal Barot, a senior consultant at Metals Focus, weighed in on the European economic scenario, remarking, “Europe’s economy is undeniably grappling with numerous challenges. Consequently, safe-haven demand is likely to surge if investors perceive that the currency is facing significant pressure.”