Gold prices rise as bond yields weaken, eyes on U.S. inflation data

Gold experienced an upward trajectory on Monday, bolstered by a decline in bond yields. Investors held their breath for the impending U.S. inflation data, set to be released later in the week. This data is eagerly awaited as it promises to shed more light on the Federal Reserve’s potential interest rate adjustments, following a recent dovish turn. As of 0458 GMT, spot gold registered a 0.2% increase, reaching $2,023.13 per ounce, while U.S. gold futures maintained stability at $2,036.70.

Tim Waterer, Chief Market Analyst at KCM Trade, explained the market sentiment, stating, “The yields are on a slippery slope after the FOMC meeting last week, and that’s allowing some further upside in the gold price.” In parallel, Benchmark U.S. 10-year Treasury yields have been hovering near their lowest levels since July. This phenomenon has diminished the opportunity cost associated with holding non-interest-bearing gold, thus boosting its appeal.

The Federal Reserve, in its recent meeting, chose to maintain interest rates at their current levels. Furthermore, they signaled the conclusion of the historical tightening of monetary policy that has been in place over the last two years, hinting at lower borrowing costs expected to materialize in 2024. However, New York Fed President John Williams voiced his dissent regarding the market’s growing anticipation of rate cuts. He emphasized, “We aren’t really talking about rate cuts right now” at the Fed and deemed it “premature” to speculate about such actions.

Market sentiment now suggests a 70% probability of a Fed rate cut occurring in March, according to the CME FedWatch tool. Traders are currently keeping a close watch on an array of U.S. economic data scheduled for release this week, including the November core personal consumption expenditure (PCE) index report set for Friday. Analysts have projected a 0.2% rise in the core PCE for the previous month, with the annual inflation rate expected to decelerate to its lowest point since mid-2021, standing at 3.4%. Tim Waterer further emphasized, “Softer macro data from the U.S. this week would support the case that the Fed could be more aggressive next year with rate cuts. So, that would bring the dollar and bond yields lower and would suit the gold price.”