Gold prices witnessed a decline on Tuesday as the U.S. dollar gained strength in anticipation of crucial U.S. inflation data. Concurrently, copper also experienced a slip, potentially due to profit-taking following initial gains buoyed by optimism surrounding China’s economic outlook.
At the outset, gold prices enjoyed some respite as the U.S. dollar pulled back from its nearly six-month peak, likely due to profit-taking activities by certain investors. Nevertheless, the dollar quickly regained its vigor in later trading sessions, maintaining proximity to recent high levels.
The trajectory of U.S. inflation and interest rates carries substantial significance. Which could exert additional downward pressure on gold prices in the months ahead. Escalating interest rates have rendered gold investments less appealing due to elevated opportunity costs.
Gold futures for December settled at $1,936.20 per ounce, marking a decline of $11.20 or 0.5% for the day. Spot gold was trading above $1,914 per ounce, marking a 0.4% decrease on the day.
Now, the spotlight is on the Consumer Price Index (CPI) inflation data for August in the U.S. Projections indicate that August’s inflation figures are expected to outpace those of July, primarily attributed to heightened fuel costs and robust retail expenditures.
This data release holds the potential to significantly influence the upcoming Federal Reserve meeting scheduled for the following week. Potentially leading to a more hawkish stance by the central bank, including deliberations on raising interest rates.
While the Federal Reserve is anticipated to maintain steady interest rates in September. A stronger inflation reading could potentially push them towards a more assertive approach to monetary policy tightening.
Unfortunately, this scenario does not augur well for gold, as a heightened interest rate environment typically uplifts the value of the dollar and Treasury yields, consequently reducing the attractiveness of gold.