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Gold (Symbol: XAUUSD) prices are holding their ground as the markets await key US inflation data later this week, which could significantly influence the Federal Reserve’s next move on interest rates. Spot gold was relatively unchanged, trading at $2,425.94 per ounce.
Image: XAUUSD prices hold steady ahead of key US inflation data, as observed on the VT Markets app.
This steady performance highlights a cautious stance from the markets as the focus remains to gauge the Fed’s next steps on rate cuts.
The US Producer Price Index (PPI) is set for release on Tuesday, followed by the Consumer Price Index (CPI) on Wednesday. These reports are critical as they will provide insight into the current inflationary pressures in the US economy.
With the Fed’s September meeting on the horizon, traders are already pricing in a 54% chance of a 50 basis point rate cut, according to the CME FedWatch Tool.
Historically, lower interest rates have boosted the appeal of non-yielding assets like gold, as they reduce the opportunity cost of holding such assets. For example, during the financial crisis of 2008, the Fed’s aggressive rate cuts significantly boosted gold prices, as investors flocked to the metal as a safe haven.
If the inflation data comes in hotter than expected, it could dampen expectations of aggressive rate cuts, potentially leading to a short-term dip in gold prices. Conversely, weaker-than-expected inflation data could reinforce the case for rate cuts, providing a bullish outlook for gold in the near term.
Related article: How to trade gold
Traders should monitor the data releases closely and be prepared for potential volatility in the gold market. The US jobs data released last Friday revealed that job growth in July did not meet expectations, with unemployment rising to 4.3%.
This indicates potential weakness in the labour market, increasing the likelihood of a recession and strengthening the case for a rate cut at the Federal Reserve meeting in September 2024.
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