- Gold has held close to the highs it hit after the FOMC meeting.
- Markets are placing a 71% chance that the Fed will cut rates in June.
- Economists expect the core PCE figure to drop to 0.3%.
Gold prices rose Tuesday as rate-cut expectations rose ahead of crucial US inflation data. The price held near highs, marked last week after Powell’s dovish press conference. Moreover, there was increased demand as central banks continued to buy gold.
Despite a small retreat, gold has held near recent highs. March has been a very good month for bullion prices, which have rallied to new highs. The recent rally occurred when Powell shifted his stance to a more dovish one, leading to increased rate-cut expectations. Lower borrowing costs make gold more appealing, as it is a non-yielding asset.
The rally, however, paused when data contradicted Powell’s stance. Inflation for February was much higher than expected. Moreover, economic data, including the monthly jobs report, revealed robust demand in the US economy. Consequently, some market participants worried that this would mean higher rates for longer. Still, Powell kept his dovish tone, supporting gold prices.
By Tuesday, markets were placing a 71% chance that the Fed would cut rates in June. However, this probability might change with more data from the US.
The next big report will come on Friday, when the US will release the core PCE price index. This is the Fed’s preferred measure of inflation. Therefore, it will affect what policymakers will say about rate cuts. If the figure beats forecasts, it would indicate persistent inflation, leading to a drop in rate-cut expectations. This, in turn, would weigh on gold prices. On the other hand, if the report shows a bigger-than-expected decline in inflation, gold would rally to fresh highs.
Economists expect the figure to drop from 0.4% in the previous month to 0.3%.
Furthermore, traders will watch Powell’s speech after the inflation report for clues on the future of interest rates.
On data, the US released its CB consumer confidence report, which showed a slight decline. Although fears of a recession fell, consumers became more worried about the looming presidential election, which could greatly impact the economy.
Chinese gold imports (Source: Bloomberg)
Meanwhile, central banks continue supporting gold prices as they buy more yellow metal. Notably, China’s central bank is buying more gold to reduce its exposure to G7 currencies used as weapons in the Russia-Ukraine war. At the same time, there was a surge in China’s gold imports.
