- Data released on Wednesday revealed that inflation in the US increased by 0.1% in May.
- On Friday, the US released its nonfarm payrolls report, showing a resilient labor market.
- Traders are now waiting to see the state of US wholesale inflation.
Gold prices gained on Wednesday after the US released cooler-than-expected inflation figures. The data increased pressure on the Fed to lower borrowing costs later this year. Meanwhile, talks between China and the US ended with no clear details on how the two countries will conduct trade after the 90-day pause.
Data released on Wednesday revealed that inflation in the US increased by 0.1% in May, below the estimated 0.2%. Meanwhile, the annual figure increased by 2.4% compared to the forecast of 2.5%. The softer-than-expected numbers increased bets on a Fed rate cut in October. Gold thrives when interest rates are low because it is a non-yielding asset.
Moreover, the data indicate that Trump’s tariffs had a minimal impact on price pressures. Initially, experts were predicting higher inflation due to an increase in the cost of imports. However, if inflation continues its decline, Fed policymakers will have more confidence to cut rates.
Last week on Friday, the US released its nonfarm payrolls report, showing a resilient labor market. The economy added 139,000 jobs compared to the forecast of 130,000. Meanwhile, the unemployment rate held steady at 4.2%. The data weighed on gold prices as it eased recession worries. The yellow metal tends to rise when there is economic uncertainty. At the same time, it pushed back the timing for the next Fed rate cut from September to October.
Other than monetary policy, the price of gold also depends on other factors like Trump’s trade policies. Recently, tensions rose after the US president accused China of violating part of their trade deal. At the same time, Trump doubled tariffs on steel and aluminum imports, raising worries about trade wars. These fears were bullish for gold, allowing the precious metal to edge higher.
Spot gold (Source: Bloomberg)
Moreover, the recent meeting between China and the US had little impact on bullion. The two countries met to iron out their trade deal and ensure that each country fulfilled its obligations. However, little was said about the future. If the 90 days elapse without a more concrete deal, trade tensions might rise again, supporting gold prices. Traders are now waiting to see the state of US wholesale inflation.
