Gold Prices Post Slight Gains Ahead of US CPI Data Release

Gold prices posted slight gains in Asian trade on Thursday as traders practiced caution ahead of the release of the US consumer price index (CPI) data, which is expected to provide further signals on the Federal Reserve’s rate cut plans.

Spot gold climbed 0.42% to $2,032.88 per ounce, while gold futures for February contract added 0.48% to $2,037.45 per ounce. The two instruments have lost around 1.7% so far this year, although they logged more than a 10% surge in 2023.

The yellow metal remained weak due to sharp losses incurred in the first week of January as traders weighed the possibility of the Fed reducing interest rates in March.

Uncertainty over the move has allowed the dollar to recover significantly, dragging gold down. The greenback, however, lost most of its recent increases this week while traders kept their expectations of a March rate cut.

The bets provided some support to gold prices, but they continued to trade within the $2,000-$2,050 range, which has been observed during most of December.

US CPI Data Ahead, Traders Still Expect March Rate Cut

Traders on Thursday showed reluctance in placing new directional bets and instead chose to wait for the US’s latest inflation data due later in the day.

The headline CPI is widely expected to rise slightly, while the core CPI is seen to decline further.

Inflation in the world’s largest economy is forecast to stay above the Fed’s annual 2% target, which, along with fresh hints of strength in the labor market, diminishes the prospect of early interest rate reductions.

Still, traders seemed largely confident about a 25 basis point (bp) cut in March despite slightly lowering them in the previous week.

The CME FedWatch tool showed traders pricing in a 67.1% probability for a reduction in March, higher than the 60.8% chance the day earlier and the 64.7% priced in last week.

Expectations of the central bank trimming interest rates early were renewed this week after certain Fed officials stated that the elevated rates were working as anticipated in easing inflation. However, they also offered limited cues on when the central bank might start the rate cuts.

The Fed is widely expected to reduce interest rates by a total of 100 to 150 bps in 2024.