Market: Gold Stagnates - Traders Focused On Inflation And The Fed!

The gold market, often seen as a safe haven, is undergoing a period of cautious calm. Investors and traders seem frozen, eyes fixed on the impending announcements from the U.S. Federal Reserve and inflation figures. At this critical moment, gold, despite its usual shine during economic uncertainty, remains stable.

Gold in an Economy Suspended by Interest Rates

Gold is on pause. Spot gold prices, currently around $2,497.25 per ounce, reflect this investor indecision.

They eagerly await two key events this week: Consumer Price Index (CPI) and Producer Price Index (PPI) figures. These data will provide better insights into the direction of Fed’s monetary policy.

Why this wait? The market is pondering the scale of the next interest rate cut by the U.S. Federal Reserve.

Indeed, a low-interest-rate environment tends to boost the appeal of gold, a non-productive but perceived stable asset. If the Fed opts for a more accommodative policy by cutting rates by 25 to 50 basis points, it could propel gold to new heights.

U.S. Inflation, the Trigger Factor

Inflation is currently one of the main factors watched by financial markets. August CPI figures, expected on Wednesday, and PPI data, due on Thursday, will provide crucial clues for stock market traders.

If inflation is lower than expected, it would strengthen speculations for a Fed interest rate cut. Such a decision would favor gold, which could then break out of its current stagnation.

Market analyst Tim Waterer explains this situation in a few words: “Gold is holding just below the $2,500 level as the market awaits CPI figures. If these disappoint, we could see a gold price surge.”

However, a moderate rate cut will not necessarily lead to an immediate rebound in gold prices. The support levels, between $2,470 and $2,480, attract particular attention. A fall in gold below these thresholds could trigger massive sales.

The Fed: The Market Maker for Gold

Expectations regarding the Federal Reserve largely influence movements in the gold market. Currently, markets assess a 69% probability for a 25 basis points cut at the Fed meeting on September 17-18. Some even speculate on a larger 50 basis points cut, though this option is evaluated at only 31% according to the CME FedWatch tool.

What is at stake for gold is the scale of the rate cut. A significant brake on monetary policy could make safe assets like gold more attractive, especially in a context where yields on bonds and other investments are falling.

Conversely, a moderate cut could keep gold in its current consolidation range.

However, it’s not all about the Fed. Macroeconomic factors, such as U.S. employment data, also come into play. August figures showed a lower-than-expected employment increase, but a drop in the unemployment rate to 4.2% indicates the labor market remains robust.

This could limit the extent of the Fed’s interest rate cut, thereby curbing gold enthusiasm.

Global Gold Demand Under Strain

On the global stage, gold demand is also experiencing contrasting changes. In China, the world’s second-largest gold consumer, the central bank has paused its gold purchases for a fourth consecutive month. This has contributed to slowing the dynamics of precious metal prices in global markets.

On the other hand, inflationary pressures in China, where consumer prices accelerated in August, could rekindle gold demand in the coming months.

Beijing seeks to stimulate domestic demand to counter the effects of production price deflation, and a boost in consumption could involve increased gold purchases.

Interestingly, China is also a strategic player in the markets for silver, platinum, and palladium, which are also on the rise. Silver gained 0.3% to reach $27.99 per ounce, while platinum and palladium also posted moderate gains. This shows that, although gold remains stable, other precious metals are attracting investor attention.

The gold situation remains complex. On one hand, traders are cautious, waiting for clear signals from the Fed before making a move. On the other hand, global pressures on commodity prices and major economies’ monetary policies add to the uncertainty.

In the long run, gold could benefit from the accommodative monetary policy that seems to be taking shape in the U.S. with this index encouraging the Fed to cut rates.