What Will Another Hotter-Than-Expected Inflation Reading Mean For Gold Prices?

Gold Prices Steady Amidst Inflation Anticipation

Gold prices are currently holding steady in wait-and-see mode as traders turn their attention to this week’s highly anticipated Inflation figures for clues on the precious metals next big move.

Following a string of mixed economic readings coming after the Federal Reserve pledged to begin lowering interest rates in 2024 – an interesting debate is raging as to what the U.S Central Bank should do next; cut, hike or hold interest rates higher for longer?

The answer to that question may come from the Fed’s preferred measure of inflation – PCE Inflation data, due for release on Thursday.

After two hotter-than-expected inflation readings already this month, traders are beginning to ponder how the Federal Reserve can manage a U.S economy that just won’t land. With some even considering ‘the unthinkable scenario’ of whether interest rates will need to go higher – only weeks after a steady run of reductions appeared all but certain.

Consumer Price Inflation in January was hotter-than-expected, as was the Producer Price Inflation, which tracks the prices businesses pay for products and services.

According to GSC Commodity Intelligence – there is a strong correlation between PPI and PCE, which ultimately signals that January’s PCE Inflation figures will follow the recent trend and clock up another hotter-than-expected reading.

Reversing Expectations for Fed Interest Rates

There’s a famous saying about how the Federal Reserve manages interest rates: They go up the escalator and down the elevator. However this time, it will likely be the opposite.

Fed officials welcomed the surprising pullback in price pressures late last year, but some have cautioned that improvement has largely centered on energy and goods – while services costs remain stubbornly elevated. Hotter-than-expected employment and inflation figures have also shifted market expectations.

Evidence of sticky inflation, a tight labor market and pushback from Fed officials has already led traders to revise their bets on the timing of the first interest-rate cut.

Earlier in the year, 8 in 10 traders priced in the first rate cut of 2024 for the FOMC’s March 20 policy meeting. But as of this week, only 1 in 10 have continued to forecast a March rate cut.

In a note to clients, analysts at GSC Commodity Intelligence wrote that the timing of the first rate cut has been pushed out to FOMC’s June 12 policy meeting – while pricing in less than four cuts in total for 2024, down from six at the start of the year.

Regardless of whether January’s PCE Inflation data meets, beats, or misses expectations – the outcome is guaranteed to move the markets significantly – bringing with it massive opportunities to capitalize on!