- There are predictions that the US Federal Reserve will raise interest rates more slowly.
- Consumer prices in the United States declined in December.
- Initial claims for state unemployment benefits decreased by 1,000 last week.
Gold prices were expected to increase for a fourth straight week, helped by a weaker dollar and predictions that the US Federal Reserve will raise interest rates more slowly.
The dollar index was on track for its lowest week since November 11, 2022. Bullion is more appealing to foreign buyers when the dollar is weaker.
According to data released on Thursday, consumer prices in the United States declined in December for the first time in over 2-1/2 years, raising hopes that inflation has entered a sustainable downward trend.
“Usually, when inflation is on the rise, gold increases. But because the market anticipates a weaker dollar and fewer interest rate increases, we continue to see gold rising despite a decline in inflation, “said Edward Meir, a Marex metals analyst.
While the labor market is still tight, the United States consumer prices decreased in December due to falling prices for gasoline and automobiles.
According to the Labor Department’s data released on Thursday, food prices posted their smallest monthly gain since March 2021 last month, providing Americans with additional relief at the grocery store.
The consumer price index fell by 0.1% last month, the first drop since May 2020, when the economy was devastated due to the initial wave of COVID-19 cases. Nov. saw a 0.1% increase in the CPI.
According to a separate Labor Department report, initial claims for state unemployment benefits decreased by 1,000 to 205,000 for the week ending January 7.
Economists anticipated 215,000 claims for the most recent week. Claims in the US have stayed low despite high-profile layoffs in the IT sector and job cuts in interest rate-sensitive industries like banking and real estate. This highlights the labor market’s resilience.
Although gold is regarded as a hedge against inflation, owning the asset becomes less advantageous when interest rates rise.
Fed’s Patrick Harker stated on Thursday that although the central bank must hike rates further to tame inflation, it can likely do so much more gradually. Raphael Bostic suggested that the inflation report may allow the Fed to limit its rate increases at its upcoming meeting to quarter-point increases. This will likely favor gold prices in the long run.
