- The US CPI increased by 0.2%, missing forecasts for a 0.3% increase.
- The US economy added a robust 256,000 jobs in December.
- A significant catalyst for gold this week is the looming shift in leadership in the US.
Gold prices rose on Wednesday as Treasury yields and the dollar eased due to softer-than-expected inflation figures. At the same time, the yellow metal remained in demand amid uncertainty regarding the upcoming Trump administration.
The dollar and Treasury yields paused their recent rally after inflation figures on Wednesday came in slightly cooler than expected. The CPI increased by 0.2%, missing forecasts for a 0.3% increase. Meanwhile, the annual figure met forecasts, rising by 2.9%. The miss increased expectations for at least one or two Fed rate cuts this year, boosting gold.
Initially, market participants were worried that a robust economy and high inflation would result in no rate cut at all this year. Notably, data on Friday revealed that the US economy added a robust 256,000 jobs in December. This number was well above the forecast of 164,000 jobs. At the same time, the unemployment rate eased to 4.1%, compared to estimates of 4.2%. This report led to a sharp decline in rate-cut bets.
Another such report would have wiped out expectations of a rate cut this year. Although it is still too early to predict what will happen this year, soft inflation raised hope that the Fed will lower borrowing costs.
US PPI (Source: Bureau of Labor Statistics)
Furthermore, data on Tuesday revealed that wholesale inflation came in lower than expected. The Producer Price Index increased by 0.2%, below estimates of a 0.4% increase. If the US keeps releasing soft data, the outlook for Fed rate cuts might change. However, experts expect a robust economy and higher inflation under Trump’s administration. Therefore, the outlook will depend on many things.
Meanwhile, another catalyst for gold this week is the looming shift in leadership in the US. Trump will take office next week, and market participants are uncertain about his policy changes. The president-elect has proposed more significant tax cuts and tariffs on imported goods.
If he implements these proposals, there will be a spike in inflation. Gold is considered a hedge against inflation. However, inflation might also keep interest rates at restrictive levels, hurting the precious metal. Still, the uncertainty before a new administration takes office has boosted gold’s appeal.
