Gold prices rose following a surprising slowdown in U.S. inflation, sparking renewed optimism for potential Federal Reserve rate cuts later this year. The price of bullion reached approximately $2,700 per ounce, marking its highest level in a month, after the U.S. consumer price index (CPI), excluding food and energy, increased by just 0.2% in December. This marked a deceleration from the previous four months, which each saw a 0.3% rise, suggesting that U.S. policymakers may have more flexibility to ease monetary policy sooner than expected.
The data prompted declines in both U.S. Treasury yields and the dollar, further boosting gold’s appeal. As gold does not generate interest, it becomes more attractive when the U.S. currency weakens, making it cheaper for foreign buyers. Following the inflation report, swap traders quickly adjusted their expectations, fully pricing in a rate cut by July, a shift from Friday’s employment data, which had pushed market expectations for rate cuts into the later months of September or October.
While several Federal Reserve officials expressed confidence on Wednesday that inflationary pressures would continue to ease, some cautioned that the fight against inflation is far from over. Last year, easing monetary policy played a pivotal role in gold’s rally to record highs.
As of 8:34 a.m. in London, spot gold had risen by 0.1% to $2,699.66 per ounce, following a 0.7% gain in the previous session. The Bloomberg Dollar Spot Index edged up by 0.1%. Meanwhile, silver and platinum saw modest gains, while palladium experienced a decline.
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