Gold prices inched above the $2,700 per ounce mark on Wednesday again as traders remained focused on the release of the US CPI inflation data.
A milder US dollar also supported sentiments in the gold market on Wednesday. A weaker dollar makes commodities priced in the greenback cheaper for overseas buyers, thereby generating more demand for the yellow metal.
“The US Dollar (USD) prolongs its retracement slide from over a two-year high touched earlier this week in the wake of a softer US Producer Price Index (PPI) released on Tuesday,” Haresh Menghani, editor at FXstreet, said in a report.
“This turns out to be a key factor lending support to the commodity, though the risk-on mood, along with hawkish Federal Reserve’s (Fed) expectations, might cap gains.”
At the time of writing, the February gold contract on COMEX was at $2,704.95 per ounce, up 0.8% from the previous close.
The softer-than-expected producer price inflation data on Tuesday raised hopes that the US Federal Reserve will ease its monetary policy in the coming months.
This benefited the gold price on Wednesday’s trading.
However, the overall resilience in the US economy and a strong labour market continued to cast doubt about Fed’s interest-rate cutting path.
US CPI data awaited
“Easing fears about US President-elect Donald Trump’s disruptive trade tariffs boosts investors’ confidence, which is evident from a generally positive tone around the equity markets,” Menghani said.
Furthermore, the upbeat US jobs report reaffirmed expectations that the Fed will pause its rate-cutting cycle later this month.
According to the CME FedWatch tool, traders have priced in only a 2.7% probability of the Fed cutting rates at its January meeting.
Traders were focused on the release of the US consumer price index inflation data scheduled for later today.
The data is expected to show a mild pick-up in inflation in December, which reaffirmed fears that interest rates in the US may remain higher for a long period.
The minutes from the Fed’s last policy meeting in December showed that policymakers were concerned about the persistently higher inflation in the US.
The minutes indicated that the Fed may slow down the pace of rate cuts in 2025. The market only expects two interest rate cuts this year, compared with four previously.
Higher interest rates are bearish for gold as it is an unyielding asset, unlike bonds.
Gold defies strong dollar and higher yields
So far in 2025, gold prices have defied the rise in the dollar index and higher bond yields.
Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report:
Interest rate expectations do not appear to play a major role in the gold price trend at present, which is why…US inflation data is unlikely to have a meaningful impact on the price.
According to Fritsch, the price movement in gold is currently governed by next week’s inauguration day of President-elect Donald Trump.
Trump’s policies regarding tariff increases and protectionist plans for the US economy created a shroud of uncertainty. This has increased safe-haven demand for gold.
“This also explains the ‘decoupling’ of the gold price from a strong US dollar, which is weighing on gold at other times,” Fritsch said.
Analysts at FXstreet believe that gold prices need to break above the $2,690 per ounce mark decisively to accelerate further above.
Currently, prices are hovering around $2,704 per ounce, which could be a signal for further upside momentum.
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