XAU/USD: Gold Hugs $2,500 Mark as Traders Gird Up for Key US Inflation Data
A market-moving CPI report is anticipated to reveal a decrease in price pressures to 2.6% for August, which would be welcome news for the Federal Reserve if it comes in lower.
• Gold prices (XAUUSD) remained flat early Tuesday after a stagnant session on Monday, with little movement. However, this lack of activity can be attributed to traders focusing on an important economic report – the last major one before the Federal Reserve’s upcoming meeting to decide on interest rate cuts. This week, the spotlight for gold will be on US inflation data.
• The consumer price index (CPI) is scheduled for release on Wednesday, and gold has already settled around $2,500 per ounce as investors expect positive news. August inflation is forecast to dip to 2.6% from July’s 2.9%. If this happens, the easing inflation would increase investor confidence in the likelihood of a more substantial rate cut, potentially 50bps instead of 25bps. Gold previously hit a record high of $2,530 on August 20.
• Moving forward, gold prices may experience some volatility as traders adjust their portfolios in preparation for the CPI report. Although gold is traditionally seen as a hedge against inflation, the current trend of lower inflation has been advantageous for the precious metal. This is because reduced inflation could lead to a larger rate cut, and lower interest rates make gold more attractive by decreasing the opportunity cost of holding a non-yielding asset.
