Gold Eases Ahead of US Inflation Data

Gold prices edged lower to around $4,120 per ounce on Tuesday, giving back part of the previous session’s gains as investors awaited a key US inflation report that could shape expectations for Federal Reserve monetary policy. Markets are now pricing in an 84% probability of a Fed rate hike in December as policymakers continue to face persistent inflationary pressures, up from roughly 74% a week earlier. Higher interest rates raise the opportunity cost of holding non-yielding assets such as gold, making the precious metal less attractive to investors. Meanwhile, bullion gained nearly 2% on Monday as oil prices plunged amid growing optimism over a potential peace agreement between the US and Iran. President Donald Trump expressed confidence that the conflict in Iran was approaching an end following discussions with Qatar’s prime minister. Lower crude prices could help ease inflationary pressures, potentially reducing the need for further monetary policy tightening.

Gold rose to $4,120 an ounce on Monday, its highest level since October 21, as falling oil prices eased inflation concerns, while investors awaited US CPI and PPI data this week for clues on the Fed’s policy outlook. The gain follows a 5% rally last week after Democrats won control of both chambers of Congress in the US midterm elections, raising hopes for an end to the US-Israeli war with Iran. Oil prices fell sharply on Monday after US President Donald Trump downplayed the likelihood of further strikes against Iran. Gold’s gains came despite a stronger-than-expected US employment report released on Friday, which reinforced expectations of higher interest rates for longer, supporting the dollar and Treasury yields. Markets currently price in an 81% probability of a Fed rate hike in December, according to CME FedWatch. Meanwhile, China’s central bank purchased 25.8 metric tons of gold in October, its largest monthly addition in three years, according to World Gold Council data.

Gold climbed above $4,100 per ounce on Monday, extending last week’s gains as weaker oil prices eased inflationary pressures, although expectations of a more hawkish Federal Reserve capped further upside. Oil prices remained under pressure after President Donald Trump said it was “highly unlikely” he would authorize additional strikes on Iran if negotiations over its nuclear program and the reopening of the Strait of Hormuz make significant progress. Meanwhile, US data released on Friday showed that job growth accelerated in October, while the unemployment rate declined to 4.1%, highlighting the resilience of the labor market and strengthening expectations of a potential Fed rate hike in December. Markets are now pricing in an approximately 81% probability of a quarter-point rate increase before year-end, up from 71% ahead of the employment report. Investors are now turning their attention to key US inflation data due this week for further clues on the Fed’s monetary policy direction.