Gold price meets support ahead of US inflation data

The US economy is absorbing the effects of higher interest rates with ease, and the US Dollar gains in appeal. Investor caution ahead of August Consumer Price Index data in the US is putting pressure on the price of gold, as a sharp rise in petrol costs suggests that headline inflation likely accelerated in August.

This could depress market sentiment and strengthen the case for the US dollar. The US dollar quickly recovered on Tuesday because the American economy is effectively absorbing the effects of higher interest rates by the Fed.

As August’s inflation data is the most recent before September’s monetary policy, it will be of the biggest significance. As investors remain wary ahead of Wednesday’s release of August inflation data, the price of gold corrects to close to $1,910.00. A sudden surge in US inflation would enhance the price of gold as it would heighten expectations of another Federal Reserve interest rate increase in the last quarter of 2023.

Interest rates are predicted to stay between 5.25% and 5.50% in September with a 93% probability. The likelihood that the Fed would maintain its current monetary policy for the remainder of the year is approximately 54%. The US Dollar Index rebounded quickly after discovering an intermediate support near 104.40 as fears of a global slowdown renewed. Market participants projected a slower growth rate in China due to a bleak demand outlook and slower job growth.

The USD Index recovered to near 104.80, supported by US economic resilience due to stable labor growth, decent consumer spending, and an easing inflation outlook. US Treasury Secretary Janet Yellen said she is confident that the central bank will contain inflation without damaging the job market and doesn’t see China-led BRICS expansion as a major threat to the US economy.