Gold price (XAU/USD) continues to face downward pressure, hovering near $1,980 after the release of the US inflation report. The report has reinforced expectations that the Federal Reserve (Fed) will need to maintain higher interest rates for a longer period to address the rising inflation.
At the same time, the US Dollar Index (DXY) has retreated from the 104.30 zone, currently hovering around 103.80, while Treasury yields have edged lower. The 10-year yield dropped slightly from 4.23% to 4.21%.
The release of the US Consumer Price Index (CPI) on Tuesday showed a 0.1% month-on-month increase in November, in line with market expectations. The annual figure grew by 3.1% in November, slightly lower than the 3.2% in October, and the Core CPI rose by 0.3% month-on-month and 4.0% year-on-year, matching market consensus.
With US inflation remaining elevated, there is anticipation that the Fed will need to maintain higher interest rates to control price increases. The expectation is that the Fed will leave rates unchanged on Wednesday, with an 80% chance of a rate hike in May, according to the CME FedWatch Tool.
Chinese authorities have signaled a focus on industrial policy next year, aiming to increase support for technological innovation, green transformation, small and micro businesses, and the digital economy. This announcement disappointed investors who were hoping for a larger stimulus to counter China’s worsening deflation and economic challenges.
Market participants will be monitoring the US Producer Price Index (PPI) ahead of the Fed monetary policy meeting on Wednesday. The comments from Fed Chair Jerome Powell after the meeting will also be closely watched. If the Fed delivers hawkish remarks, it could put further downward pressure on the gold price.
Additional insight:
The dynamic relationship between inflation, interest rates, and gold prices highlights the interconnectedness of global economic factors. The actions and statements of major central banks like the Federal Reserve have a significant impact on the gold market, as investors seek safe-haven assets in times of economic uncertainty and potential inflation. Additionally, China’s industrial policy and economic reforms will continue to be a focal point for global markets, influencing investor sentiment and asset prices.
