- Gold prices have rallied since Thursday last week as recession fears eased.
- The US PPI increased by 0.1% compared to expectations of a 0.2% increase.
- Analysts are predicting an increase of 0.2% in the monthly US CPI rate.
Gold prices eased slightly on Tuesday after making new highs on cooler-than-expected US wholesale inflation data. The pullback came as investors took profits after a three-session rally and continued into Wednesday. However, experts believe fundamentals support further upside for prices.
Notably, gold prices have rallied since Thursday last week as recession fears eased. The turmoil that caused a significant decline at the start of the week was cooling down. Initially, there had been widespread fears that the US economy was heading for a recession due to an unexpected jump in the unemployment rate.
Gold is considered a haven in times of uncertainty. However, this time, markets preferred the yen and the Swiss franc. Meanwhile, the yellow metal suffered after a brief spike.
However, things calmed down by Thursday as data showed a drop in unemployment claims. Amid the recession panic, Fed rate cut expectations soared. Ideally, this should have boosted gold prices. However, the market focus was on the state of the US economy. Nevertheless, when market participants were convinced the risk of recession was low, the focus returned to the Fed’s policy outlook.
Notably, markets are betting on a 50-bps cut in September. Although the chances of such a move have fallen since last week, the prospect of a significant rate cut is bullish for gold prices. On Tuesday, rate cut expectations increased after data revealed softer-than-expected wholesale inflation figures.
US producer prices (Source: Bloomberg)
The US PPI increased by 0.1% in July, compared to expectations of a 0.2% increase. Similarly, the core PPI recorded no change at 0.0%, below forecasts of a 0.2% increase. Meanwhile, the annual figures increased by 2.2% and 3.3%, respectively. If prices at the producer level are increasing at a slower rate, then consumer inflation will also ease. Consequently, policymakers may start drumming up support for a September rate cut.
The next major inflation report is due on Wednesday. Analysts are predicting an increase of 0.2% in the monthly CPI rate. Meanwhile, the annual figure might hold steady at 3.0%. More easing will boost rate-cut bets and gold prices. Meanwhile, on Thursday, the US will release its retail sales report, showing the state of consumer spending.
