Gold price rallied last week on prospect of less aggressive Fed after US inflation data
The price of gold slipped from its highest level since August on Monday as traders sought to lock in profits and a top Federal Reserve official signalled that US policymakers aren’t softening their stance against inflation just yet.
Spot gold fell 0.9% from the previous session to USD 1,756.18 per ounce at 11:00 am in London on Monday, 14th November. Bolstered by a report on US consumer prices, gold spot prices rose more than 4% last week, resulting in their best week since March this year.
Gold dropped and the dollar strengthened after Fed Governor Christopher Waller said on Sunday that the Fed may consider slowing the pace of rate increases at its December meeting, but that doesn’t mean that it’s “softening” fight against inflation. The US dollar, as measured by the US dollar index (DXY), rose 0.8% on Monday morning to 107.12.
A report on US inflation on 10th November showed a slowing pace of price increases, fuelling speculation that the Fed will ease the scale of its interest-rate increases.
US consumer prices rose 7.7% in October from the same month last year, compared with an 8.2% annual increase in September, the Labor Department said on Thursday. Economists had expected an increase of 8%.
Year-to-date spot gold price
The weaker-than-expected inflation print also sparked a sell-off in the US dollar last week, again supporting the gold price. The greenback (DXY) weakened more than 3% in the last two sessions. That makes gold contracts, priced in the US currency, more attractive to buy for the holders of other currencies.
Higher US interest rates this year have been driving up safe-haven demand for the dollar, helping the DXY touch a 20-year high. This diminishes the safe-haven appeal of gold, which has no yield.
Gold prices have been under pressure since the Fed began its rate hike campaign to fight the fastest inflation in more than 40 years.
The Fed has raised US interest rates in four large, 75-basis-point steps, to a range of 3.75% and 4.00% by early November. Rates were near zero at the beginning of the year.
US monetary policy makers are expected to raise their target rate again in December, but at a smaller scale. Futures pricing now predicts an 85% probability of a 50-basis point rate hike at the Fed’s December policy meeting, according to the CME Group’s FedWatch Tool.
The Fed beginning to moderate rate increases would lend support to the gold price.
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