With markets expecting the Fed to continue cutting interest rates this year, weakening US economic data, and regional political uncertainties, gold has found positive and effective support. The macroeconomic outlook for gold remains strong, thus the possibility of gold’s oscillating strength remains substantial.
On Wednesday (August 14th, local time), data indicated that US consumer prices rebounded as expected in July, dampening expectations of a significant Fed rate cut next month, causing gold prices to fall by over 1%.
As of 12:50 PM Eastern Time, spot gold fell by approximately 1% to $2,443.41 per ounce, while US gold futures dropped by 1.1% to $2,481.60 per ounce.
Despite this pullback, precious metal trading prices are close to the historic highs set last month. Gold prices have risen by almost 20% this year, as optimism about the Fed’s monetary policy easing has intensified.
However, the latest data released by the US Labor Department showing an increase in US inflation in July indicates that a significant Fed rate cut in September is unlikely.
The Consumer Price Index (CPI) in the United States saw a slight 0.2% increase last month after a 0.1% decrease in June. According to the U.S. Bureau of Labor Statistics, the CPI rose by 2.9% over the past 12 months ending in July, following a 3% increase in June.
Phillip Streible, Chief Market Strategist at Blue Line Futures, explained in a report that the current expectation has shifted towards a mere 25-basis-point rate cut, which could weaken part of the bullish momentum in the gold market.
Tai Wong, an independent metals trader in New York, stated, “A rate cut in September is now a certainty; current data indicates the Fed will start with a 25-basis-point cut, which will disappoint the market.”
In the short term, the gold market might remain volatile, with a clearer trend potentially emerging after the initial interest rate cut. This could be particularly evident if regional political conflicts escalate, further driving up the price of gold. In the medium to long term, there is a considerable likelihood that central banks around the world will continue to increase their holdings of gold, suggesting that the long-term logic for a rise in gold prices still exists.
