- Market participants are awaiting the US core PCE price index report.
- Economists expect inflation to increase by 0.3%.
- US GDP data on Wednesday revealed that the US economy expanded by 2.8% in the fourth quarter.
Gold rebounded on Wednesday as the dollar fell ahead of crucial US inflation data. In the previous two sessions, gold eased amid reports of a looming ceasefire in the war between Israel and Hezbollah. Moreover, Trump’s pick for the next US Treasury Secretary boosted the dollar and weighed on the yellow metal.
The greenback paused its recent rally as market participants awaited the US core PCE price index report for clues on the Fed’s next policy meeting. Fed policymakers have assumed a cautious tone since Trump won the US election. As a result, Fed rate cut bets have fallen while the likelihood of a pause in December has increased.
Economists expect inflation to increase by 0.3%, holding from the previous month. Hotter-than-expected numbers might further lower rate-cut bets and hurt gold prices. High interest rates are bearish for bullion as yielding assets become more attractive. On the other hand, gold will continue climbing if inflation comes in below estimates.
Meanwhile, GDP data on Wednesday revealed that the US economy expanded by 2.8% in the fourth quarter, meeting estimates.
Spot gold (Source: Bloomberg)
Gold prices fell over 3% in the previous two sessions after reports that Israel and Hezbollah had come up with terms for a deal to end the war. Such an outcome would increase risk appetite and lead to an outflow of money from the safe-haven gold. Before that, escalating tensions between Russia and Ukraine had sent most traders scrambling for safety, boosting prices. Therefore, an end to geopolitical tensions dents demand for gold, lowering prices.
At the same time, investors were reacting to Trump’s nomination for Treasury Secretary. The president-elect chose Scott Bessent, a supporter of his policies on tariffs and strong dollar. Since Trump’s win, gold has lost nearly 4% of its value as experts predict high inflation under the new administration. High price pressures will make it difficult for the Fed to continue cutting interest rates.
Meanwhile, the lower prices since Trump’s win have increased demand for physical gold in India and other Asian countries. Traders are buying the dip after analysts predicted gold could reach as high as $3,000. However, if safe-haven demand drops and the Fed pauses rate cuts, this forecast might not actualize.
