Gold price declines following surprise CPI data

The price of an ounce of gold has dropped below $2000 for the first time since mid-December. As of this writing, the price of an ounce of the precious metal is $1992.07. Gold prices plummet due to unyielding US inflation statistics. The US dollar returns to its nearly two-month high as the Fed’s expectations of cutting rates are dashed by unwavering US inflation figures.

Gold price is facing a sell-off due to stubborn US inflation data from the Bureau of Labour Statistics. The core CPI data for January showed a steady pace of 3.9%, with monthly headline inflation growing at a higher pace of 0.3% compared to expectations and the former reading of 0.2%.

Core CPI that excludes volatile food and oil prices rose by 0.4% against the consensus and prior reading of 0.3%. The headline CPI decelerated to 3.1% from 3.4% in December, while market participants projected a slower growth rate of 2.9%.

Stubborn inflation data generally builds a negative bias for gold, making it more likely interest rates will remain restricted, escalating the opportunity cost of holding non-yielding assets. The Fed is expected to push back expectations of aggressive rate cuts in 2024, believing that achieving its dual mandate (2% core inflation and full employment) remains out of sight. Labor demand in the US has remained robust and the scale of economic activities is improving significantly despite higher interest rates.

The US Dollar has refreshed its almost two-month high above 104.70, as investors infuse more liquidity in the US Dollar in case of accelerating inflation data, as this would allow the Fed to maintain a hawkish interest rate stance. This week, volatility is expected to remain high as the US Census Bureau reports Retail Sales data for January, which will shed some light on consumer spending.

Gold price has surrendered gains inspired by escalating Middle East tensions and foreign inflows for non-yielding assets, such as Gold, during times of geopolitical uncertainty. Technically, gold price has been dumped by investors after stubborn US inflation data, resulting in wider ticks and heavy volume to the downside.