Gold prices jumped higher Tuesday, recapturing losses seen at the tail end of last week, after US inflation data surprised on the downside, raising the likelihood that interest rates may have peaked.
Prices rose as high as $1,970 an ounce Tuesday, compared with a low of $1,933 an ounce on Monday. The jump followed the release of data showing that US headline and core inflation rates were lower than expected in October.
This raised speculation that the US Fed may be done with interest rate hikes, and follows comments from Fed Chair Jerome Powell last week suggesting he wouldn’t hesitate to raise rates further if needed, in a bid to bring inflation down to 2%.
Several months of rising interest rates have created a headwind for gold, bringing prices down from highs of well over $2,000 in May, and any signs of a halt to monetary tightening would be expected to support the yellow metal. The latest figures prompted a drop in the value of the US dollar against other currencies, in a bullish move for dollar-denominated assets like gold.
Elsewhere, the wildcard factor for gold remains the tensions in the Middle East, given the metal’s status as a perceived safe haven in times of geopolitical uncertainty.
Further macroeconomic data points are expected this week in the form of Chinese industrial production and retail sales on Wednesday, followed later in the day by US Producer Price Inflation and retail sales figures.
Looking at the longer-term charts, any end to interest rate rises could help support gold prices over the long term. And while gold ETFs saw continued outflows in Q3 2023, central banks saw the third strongest quarter of net buying, according to World Gold Council figures. That said, gold prices could struggle to push into new highs in the absence of any major geopolitical upheaval or stock market downturn.
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