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Gold prices declined on Monday, settling at their lowest in more than five weeks, as expectations that the Federal Reserve might push interest rates even higher have weighed on the yellow metal while boosting Treasury yields and the US dollar.
The decline was due to lack of news and data, with investors awaiting Tuesday morning’s CPI numbers for direction, along with a PPI reading on Thursday, as the “two inflation data sets…could influence” the Federal Reserve’s decision on interest rates, Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch.
For the CPI data, the expectations are for a 6,2 percent year over year and 0,5 percent month over month for January, said Wright. “Rumors are swirling the data could easily come in above estimates and a hot data point could lead to both US equities and gold taking a quick and pronounced hit to the downside.”
Wright said an in-line number at 6,2 percent year over year and 0,5 percent month over month, with core inflation at 0,4 percent month over month, would still be “elevated data sets, but not enough to alarm the FOMC and a small sign of progress over the longer trend.”
Gold prices had climbed for three straight months through the end of January, gaining more than 17 percent, according to FactSet data.
But the rally, which also benefited prices of other precious metals like silver, came to a halt earlier this month as robust January economic data, including the Labour Department’s monthly report on the US jobs market and the ISM survey on services-sector activity, spurred a recalibration of interest-rate expectations.
“The concern for gold throughout January was that it was trading on sentiment rather than reality and, while the indicators throughout last month matched up with this forward-looking view, it would only take one or two data points out of line with the prevailing view for the precious metal to suffer a price shock,” said Rupert Rowling, a market analyst at Kinesis Money.
That’s “exactly what has happened with a hotter-than-expected US jobs print, forcing a recalibration of how soon the Fed will stop its aggressive stance,” he said in a daily note.
Investors are coming around to the notion that the Fed will push rates north of 5 percent in the coming months, then keep them elevated until at least 2024. Some are betting that rates could move even higher, perhaps to 6 percent or beyond.
Fed policy makers, including Chairman Jerome Powell, have contributed to these expectations by insisting that rates still have further to rise, and that the central bank still has a way to go in its battle against inflation.
“For now, gold investors will be hoping that this week’s US inflation data positively surprises to once again give the US central bank room to hit pause on more hikes,” said Rowling. – Marketviews
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