VT Markets APP

Trade CFDs on FX, Gold and more

Get

Anticipating the impact of US inflation data on gold prices 

May 14, 2024

Key points: 

  • Gold prices saw an increase on Tuesday, rising 0.4% to $2,344.39 per ounce, despite a drop the previous day. 
  • Upcoming U.S. inflation data crucial for gauging future Federal Reserve policy decisions and its subsequent influence on gold prices. 
  • Recent softening of key economic indicators could hint at potential shifts in gold’s trajectory as a traditional safe-haven asset. 

Gold prices edged higher on Tuesday, marking a modest recovery of 0.4% to $2,344.39 per ounce by early GMT, following a 1% decline on Monday. This fluctuation occurs as markets gear up for critical inflation reports set to shed light on potential changes in the U.S. Federal Reserve’s interest rate policies. 

Not only gold traders, but the entire financial world’s eyes are set on the forthcoming US inflation report, anticipated to be a determinant for both the Federal Reserve’s policy decisions and the behavior of gold prices.

Traditionally, gold (Symbol: XAUUSD), acts as a hedge against currency devaluation and inflation. With fewer than two rate cuts projected for 2024 for the USD, the inflation data release holds added weight. 

Recent data such as weaker than expected payrolls report, PMI surveys and jobless claims data all point towards softening of economic background. As these data could sway the Federal Reserve’s stance on monetary tightening or easing, they also become vital towards the price movement of gold. 

Looking back in the past 

As shown in the chart above, gold has historically functioned as a reliable hedge against inflation. For instance, 

  • 1970s: As inflation spiked, gold prices notably surged as investors sought protection against currency devaluation and economic uncertainty.  
  • 2008 global financial crisis: A surge in inflation expectations led to significant gains in gold as investors sought safety amid widespread market turmoil. 
  • Late 2018: When inflation fears combined with concerns over trade tensions and Fed policy uncertainty, prompting a rally in gold. 

These episodes underline gold’s appeal during volatile economic periods. 

What’s next for USD and gold? 

Looking ahead, if the CPI report indicates inflation is cooling, it could lessen the likelihood of further rate hikes, thus potentially enhancing gold’s appeal as a non-yielding asset. On the other hand, if inflation rates come in higher than expected, this could affirm the Fed’s current policy path and possibly put downward pressure on gold prices in the short term.

However, in such a scenario, the longer-term implications could still bolster gold’s status as an inflation hedge if investors begin to anticipate a more aggressive inflationary trend. 

Meanwhile, other precious metals also showed positive movements, with spot silver (Symbol: XAGUSD) rising 0.8% to $28.41 per ounce, and palladium up 0.8% to $968.43. Platinum (Symbol: XPDUSD) increased by 0.6% to $1,002.90, reaching a near one-year peak. 

From the perspective of a trader 

Gold and the precious metals market will likely remain highly sensitive to economic indicators and central bank communications, with investors watching closely for any signs that could dictate short-term price directions and long-term strategic positioning.

In such a week, monitoring the CPI data would be critical, as the outcome could trigger swift recalibrations in asset allocations, including gold. Such market volatility can be risky yet highly lucrative at the same time. 

Create your live VT Markets account and start trading now.