Gold Prices Jump More Than 1% Today, Boosted by Falling Oil Prices and Easing Inflation Fears
Gold prices rose by more than 1% during trading on Monday, supported by a decline in global oil prices and easing inflation concerns, as investors await the release of U.S. inflation data, looking for new clues regarding the expected path of interest rates and the Federal Reserve’s decisions in the coming period.
Gold prices rose today to near $4,134 per ounce before retreating once again to $4,086 per ounce, though they are still up for the day so far.
Falling Oil Prices Support Gold Gains
The rise in gold prices coincided with a decline in oil prices, following remarks by U.S. President Donald Trump in which he indicated that further attacks on Iran were ruled out, as talks aimed at ending the conflict continue, which helped ease concerns about disruptions to global energy supplies.
The decline in oil prices also helped ease concerns about rising inflation, which reduced pressure on gold stemming from the prospect that U.S. interest rates would remain high for a longer period.
Trump’s more conciliatory tone regarding Iran helped limit the rise in oil prices, which in turn eased the inflationary pressures that had been negatively affecting gold’s performance, coinciding with a decline in the U.S. dollar.
The dollar’s decline also boosted the precious metal’s appeal, as its depreciation makes gold, which is denominated in U.S. dollars, less expensive for buyers holding other currencies.
U.S. Interest Rate Expectations Weigh on Gold Prices
Despite the support gold has received from falling oil prices and a weaker dollar, expectations regarding U.S. monetary policy remain a key factor in determining price direction in the coming period.
U.S. labor market data showed an acceleration in job growth during October, coinciding with a drop in the unemployment rate to 4.1%, which reinforces expectations that the labor market will remain strong, and may prompt the Federal Reserve to continue its hawkish monetary policy.
According to the FedWatch tool, traders’ expectations regarding the likelihood of a U.S. interest rate hike in December rose to 79%, compared to about 71% before the jobs data was released.
These expectations are particularly significant for gold, which does not generate a yield for its holders, as higher interest rates increase the opportunity cost of holding the precious metal, which could limit its gains.
U.S. Inflation Data Will Determine Gold’s Future Direction
Investors’ attention this week is focused on U.S. inflation data, with the Consumer Price Index (CPI) scheduled for release on Tuesday, followed by the Producer Price Index (PPI) on Friday.
This data is expected to play a pivotal role in shaping market expectations regarding the Federal Reserve’s upcoming decisions, particularly regarding the likelihood of an interest rate hike at the December meeting.
