In a dance of contrasting trajectories, gold futures, which tantalized the $2,000 mark earlier in August, have retraced their steps to the mid-to-lower $1,900 range. Meanwhile, spot gold, closely monitored by certain traders, is emerging from a one-month nadir, recovering from levels beneath $1,922.
In a stark juxtaposition, the Dollar Index has surged ahead in the run-up to the imminent release of last month’s inflation data, surging to five-week peaks at 102.655.
The looming question is this: What fate awaits the lustrous yellow metal and the U.S. currency if the Consumer Price Index (CPI) for July aligns with forecasts or veers slightly higher or lower?
CPI Anticipation:
The forthcoming Thursday heralds the release of the latest CPI figures from the United States—an indicator that will shed light on the Federal Reserve’s potential rate hike trajectory.
A day preceding the CPI revelation, the U.S. will unveil its July Producer Price Index (PPI) data, with projections suggesting a 2.3% year-on-year increase in core producer prices.
Forecasts suggest that after witnessing a year-on-year growth of 3.0% in June—a two-year low—the CPI is poised for a marginally more assertive expansion of 3.3% in July. It is noteworthy that the Federal Reserve’s targeted inflation rate remains at a modest 2% per annum.
Attributing the surge in inflation to robust job growth, augmented wages, and extensive relief spending following the 2020 coronavirus outbreak, the Federal Reserve’s perspective highlights key contributors to inflation scaling over 9% in June 2022—a level not seen in four decades.
While the era of pandemic-induced spending has elapsed, the persistently buoyant job market and wage growth have been instrumental in sustaining inflation momentum. Consequently, the Federal Reserve continues to incrementally adjust interest rates upward.
Having implemented a series of rate hikes, amassing 525 basis points since March 2022, the central bank’s next rate decision is scheduled for September 20.
A softened CPI reading could incline Fed policymakers toward postponing interest rate increases at their September gathering, following a modest quarter-percentage-point hike in July.
Although June witnessed a more measured expansion of U.S. employment compared to the robust surge in May, wage levels remained elevated, surpassing the central bank’s ideal threshold.
Notably, a chorus of hawkish sentiments has emanated from various Federal Reserve speakers, advocating for further rate hikes. With rates already perched at a 22-year zenith, these voices argue that additional increases are warranted, given the persistent inflation levels that extend beyond tolerable thresholds for the average American.
