Gold prices declined in trading today, directly impacted by the rise of the US dollar, which reached its highest level in nearly a month. This decline comes at a time of cautious anticipation among investors worldwide, as markets await the release of key US inflation data, which should provide clear indications of the future direction of monetary policy by the Federal Reserve (the US central bank).
General context: The inverse relationship between gold and the dollar
Historically, gold and the dollar have a strong inverse relationship. When the dollar appreciates, gold, which is priced in US dollars, becomes more expensive for buyers using other currencies, leading to decreased demand and a subsequent drop in its price. The dollar has recently experienced upward momentum, buoyed by a series of stronger-than-expected US economic data releases and hawkish comments from Federal Reserve officials, further enhancing its appeal as an investment asset.
The importance of inflation data and its expected impact
Investors are eagerly awaiting the US Consumer Price Index (CPI) report, a key inflation gauge used by the central bank in its interest rate decisions. If inflation data comes in higher than expected, it could prompt the Federal Reserve to maintain high interest rates for longer to combat price pressures—a positive scenario for the dollar but negative for gold, as higher interest rates increase the opportunity cost of holding gold, which does not generate interest. Conversely, if the data is weaker than expected, it could increase the likelihood of an imminent interest rate cut, potentially weakening the dollar and supporting gold prices.
Performance of other precious metals
Gold wasn't the only metal affected by this climate; other precious metals also experienced similar pressures. Silver saw a slight decline in spot trading, and both platinum and palladium fell. These metals are influenced not only by monetary factors but also by industrial demand, which is closely linked to the health of the global economy. Given the current uncertainty, the performance of these metals remains contingent on broader economic trends.
In trading details, spot gold prices fell slightly by 0.1%, while US gold futures saw a marginal increase. This divergence reflects the cautious sentiment prevailing in the markets ahead of key economic data releases that will determine the direction of assets in the short term.
