Gold price held steady above $2,000 per ounce as financial markets digested US CPI numbers and the Fed meeting minutes. As at the time of writing, it was up by 0.53% at $2,013.70.
US economic health
The US CPI data and last week’s jobs data are some the crucial economic events ahead of the next Fed interest rate decision in early May. March’s job report showed that the demand for workers remains substantial despite the weakening economy. Granted, there was a decline in the created jobs on a month-over-month basis.
Earlier on Wednesday, the Labor Department indicated that US inflation dropped in March to its lowest level in close to two years. The CPI rose by 5% YoY compared to the prior month’s 6%. However, with the exclusion of the volatile food and energy components, core CPI surged by 5.6% YoY and 0.4% on a monthly basis. This signalled that price pressures remain elevated.
On the one hand, the easing of US inflation boosted gold price while weighing on the US dollar. However, while the precious metal is a conventional hedge against inflation, the data warrants the continuation of Fed’s aggressive monetary policy. An environment of high interest rates tends to be bearish for the metal.
Interest rates’ path
There have been heightened bets that the Fed will approve another 25 basis points rate hikes during its May policy meeting before pausing on the increases. Fed meeting minutes showed that the policy-makers considered pausing rate hikes during the March meeting amid the banking crisis.
However, they decided that the stabilisation of the banking system okayed further policy tightening to deal with high inflation. Nonetheless, in the absence of the banking crisis, a steeper interest rate increase of 50 basis points appeared viable.
In the ensuing sessions, gold price may trade within a horizontal channel as investors digest recent economic events and await the next Fed meeting. On the one hand, recent inflation numbers suggest that the central bank’s aggressive policy is bearing fruits. However, even with the recorded declines, it is still persistently high. At the same time, the labor market remains strong.