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All eyes on US report for determining gold prices amid Fed Rate cut speculation

All eyes on US report for determining gold prices amid Fed Rate cut speculation A goldsmith wearing a protective mask arranges golden bangles at a jewelry shop at the Grand Bazaar in Istanbul, Türkiye, Aug. 6, 2020. (Reuters)
By Omer Faruk Bingol
May 15, 2024 11:31 AM

As gold prices strive to maintain their upward trajectory midweek, all eyes are on the U.S. inflation report expected to be released on May 15.

The Consumer Price Index (CPI), one of the most critical indicators referenced by the Federal Reserve for monetary policy easing, will be revealed on Wednesday.

Türkiye’s inflation is expected to increase by 0.4% in April, with annual inflation expected to decline from 3.5% to 3.4%.

Retail sales data for April is also forecasted to rise by 0.4%, up from 0.7% in the previous month.

How might gold be affected?

Whether both data sets align with expectations or fall below, forecasts could prompt a shift in expectations toward a Federal Reserve interest rate cut.

Consequently, this may lead to a slight weakening of the dollar globally and provide some initial but limited support for gold prices.

However, if the U.S. inflation report surpasses expectations, it could potentially trigger a further downward trend in gold prices.

This process leaves the question of whether gold prices will rise or fall.

Gold price on May 15

Currently, the gram of gold traded on the open market starts the day at ₺2445, with a range of ₺2435-2485 in the Grand Bazaar. Quarter gold is being sold at ₺4,040 during the morning hours.

Meanwhile, trading of gold continues above $2355 in the global markets.

Over the past six weeks, the support levels have been ₺2380 for grams and $2280 for ounces, with current prices sitting about 2.5% above these supports.

Fitch’s expectation for CPI

Meanwhile, Fitch Ratings has raised its CPI expectation for the U.S. in 2024 from 2.6% to 2.9%. Despite highlighting sticky inflation in the country, Fitch predicts a significant decline in household incomes and savings, foreseeing a notable decrease in consumer spending from the second half onward.

Fitch’s CPI expectation significantly exceeds the Federal Reserve’s 2% inflation target, leaving uncertainties regarding the timing and quantity of expected interest rate cuts.

What is the FED’s next move?

Current expectations in the U.S. suggest that there could be 1-2 interest rate cuts this year, with the first expected in September.

This scenario increases the expectation that the Federal Reserve’s policy interest rate will finish 2024 in the 4.75-5.00% range, which is considered high.

These expectations have kept the dollar index hovering around 105.00 levels and the U.S. two-year Treasury yield above 4.80%.

Goals and expectations for gold

Looking at year-end expectations for gold, Goldman Sachs recently forecasted $2700 per ounce, while Bank of America Corporation (BOFA) projected $3000 per ounce. Indeed, the determinant factor for gold prices is not solely the Federal Reserve.

A period of increased demand for physical gold as a hedge against inflation is witnessed globally, particularly among central banks, including Türkiye, China, India and Kazakhstan, which collectively purchased $24 billion worth of gold in the first quarter of 2024.

Geopolitical risks persisting worldwide, particularly in the North of the Black Sea, the Middle East and the Far East, also keep demand for gold as a “haven” buoyant.

In a broader view, gold appears to be positioned above $2250 per ounce and ₺2350 per gram, with a gradual and time-spanning medium-to-long-term upward trajectory being the most credible scenario.

Last Updated:  Jun 7, 2024 11:43 AM