Gold prices edged up on Wednesday ahead of the release of the U.S. consumer price inflation report, which could provide additional insight into the Federal Reserve’s interest rate path for this year.
In the UAE, gold rates edged up AED0.75, with 24-carat gold rising to AED324 and 22-carat gold reaching AED300, respectively. In addition, 21-carat gold edged up to AED290.5 while 18-carat gold recorded AED249.
Globally, spot gold rose 0.42 percent to $2,679.97 as of 6:09 GMT. Meanwhile, U.S. gold futures gained 0.43 percent to $2,693.80.
The U.S. dollar index fell 0.03 percent to 109.24, remaining near its two-year peak but making bullion more attractive for other currency holders.
Market expects no rate cut this month
Gold prices rose ahead of the highly anticipated December U.S. consumer price inflation (CPI) report, due at 13:30 GMT. Market participants seek to gain additional insight into the Fed’s rate cut trajectory after last week’s jobs report, which underlined the strength of the U.S. economy and led traders to significantly reduce their bets on further Fed easing.
A stronger inflation report will likely solidify the view that the Fed will be normalizing policy after major rate cuts in 2024, in turn, impacting gold prices. Non-yielding gold is a hedge against inflation and flourishes in a low-interest-rate environment.
Data on Tuesday showed that U.S. producer prices increased moderately in December. The U.S. Bureau of Labor Statistics reported that the producer price index, which measures wholesale inflation, rose 0.2 percent in December and the core gauge remained flat during the month. This comes on the back of the upbeat U.S. monthly jobs report which supported the dollar’s surge to a 2-year peak.
However, this data is unlikely to change views that the Fed would not cut interest rates again before the second half of this year amid labor market resilience. Traders have fully priced in a pause in rate cuts at the Fed’s January policy meeting.
Trump to gradually raise tariffs
With President-elect Donald Trump set to begin his second term next week, the focus remains on his policies that are expected to fuel inflation. Reports that Trump’s top economic advisers are considering a slow increase in tariffs to prevent a sudden spike in inflation triggered a modest pullback in the U.S. Treasury bond yields and dollar, benefitting gold prices.
Trump previously pledged to impose big tariffs against America’s three biggest trading partners, Mexico, Canada, and China and also threatened a 100 percent tariff on ‘BRICS’ nations. These policies could cause volatility in the market and raise trade tensions with the main trading partners, potentially raising demand for safe-haven gold. However, these policies could also prompt the Fed to take a more cautious stance on rate cuts, limiting an upside in gold prices.
The minutes from the central bank‘s December meeting indicated that officials are concerned about inflationary pressures stemming from protectionist and expansionary policies under Trump, with uncertainty surrounding his plans expected to heighten as his inauguration approaches.
Read| Gold prices to grow modestly in 2025 following 25.5 percent surge in 2024: Report
Other precious metals
As gold prices rose, the precious metals market witnessed a downward movement on Wednesday. Spot silver lost 0.14 percent to $29.85 per ounce while platinum declined 0.07 percent to $934.60 and palladium dipped 0.26 percent to $936.59.
