- Data on Tuesday revealed that inflation in the US increased by 0.4% in October.
- The US economy added a robust 165,000 jobs in October.
- Oil prices collapsed after Republicans lost the midterm elections.
Gold prices steadied on Wednesday after plunging in the previous session due to a surge in Fed rate hike expectations. The US released an upbeat consumer inflation report that has put pressure on the Fed to increase borrowing costs. Meanwhile, the yellow metal jumped last week after the midterm election, which sent oil prices tumbling.
Data on Tuesday revealed that inflation in the US increased by 0.4% in October, bigger than the forecast of 0.3%. The underlying inflation numbers were also hotter than expected, solidifying bets for a hike in December. Initially, market participants were pricing in an 84% chance of such a move. The figure increased to 100% after the report.
Higher borrowing costs lower the appeal of the non-yielding metal. As a result, prices drop. Bullion also fell on Friday after the US non-farm payrolls report. The economy added a robust 165,000 jobs in October, beating the estimate of 65,000. At the same time, the unemployment rate eased from 4.2% to 4.1%. A resilient economy gives the Fed enough room to hike interest rates.
Remarks from policymakers like Mary Daly, John Williams, and Michelle Bowman showed support for rate hikes to tame inflation. Market participants will keep an eye on incoming data for more clues on the Fed’s policy path in the coming year. They will also pay close attention to developments in the Middle East and oil prices.
Gold weekly change (Source: Bloomberg)
Last week, gold rose as oil collapsed after Republicans lost the midterm elections. The loss of majority seats in both the House and the Senate could weaken Trump’s ability to pass unpopular policies, especially regarding the Iran war. Experts believe Democrats will pile pressure on the president to end the expensive war.
Moreover, traders are hoping that talks that recently resumed between the US and Iran will lead to a peace deal. After the elections, Trump said he had no intention to attack Iran as long as talks progress well. If oil prices keep dropping, inflation concerns will ease, boosting gold prices.
“If we see positive developments in the Middle East, that would be supportive for gold from an inflation standpoint. But overall, the near-term macro setup for gold does not seem positive,” said Soni Kumari, an analyst at ANZ.
