On January 16th, during the Asian trading session, spot gold fluctuated narrowly around $2,596 per ounce, continuing its previous upward trend. On Wednesday, U.S. December core CPI data came in lower than expected, easing inflation pressures and boosting market expectations for an extended Federal Reserve easing cycle, benefiting gold prices as a result.
Core CPI Slows, Boosting Gold Market Sentiment
According to the U.S. Bureau of Labor Statistics, December core CPI, excluding food and energy, rose 3.2% year-on-year, the lowest level since August 2024, and below the market expectation of 3.3%. The month-on-month increase was 0.2%, down from the previous value of 0.3%. This marks the first decline after four consecutive months of steady core CPI growth.
Overall CPI rose 0.4% month-on-month, the biggest increase in nine months, mainly due to a significant rise in energy goods costs, with gasoline prices up 4.4% month-on-month. Although overall CPI recorded a year-on-year increase of 2.9%, slightly above the previous value of 2.7%, the easing of core inflation has instilled confidence in the market regarding the Fed's policy trajectory.
US Bond Yields Plummet, Supporting Gold
After the CPI data release, the 10-year US bond yield plunged 2.82% intraday, marking the largest single-day drop since November 25th, closing at 4.652%. The dollar index was also hit, at one point touching a one-week low of 108.59, finally closing at 109.10. These factors collectively enhanced gold's appeal, with spot gold prices closing up 0.72%, at $2,696.61 per ounce, nearing the $2,700 mark.
Peter Vassallo, foreign exchange portfolio manager at BNP Paribas, pointed out: "The trend of a strong dollar will not immediately reverse due to the fall in CPI data, but this may introduce a more nuanced adjustment period for the dollar against European currencies, thereby supporting the gold market."
Increased Market Risk Aversion and Geopolitical Uncertainty
Despite the joint announcement by the US and Qatar of a ceasefire agreement between Israel and Hamas briefly causing gold to give back gains, investor buying on dips pushed gold prices back up. Analysts noted that the phased implementation of the Gaza ceasefire agreement remains highly uncertain, and geopolitical risks continue to support safe-haven demand for gold.
Fed Policy and Gold Outlook
Market expectations for adjustments in Fed monetary policy have shifted. According to interest rate futures trading data, traders see an increased likelihood of a Fed rate cut in June, and about a 50% chance of a second rate cut by the end of the year. However, Fed officials remain cautious. New York Fed President Williams emphasized that future monetary policy formulation will be entirely dependent on economic data performance, with current uncertainties largely stemming from potential new policies under the incoming Trump administration.
Meanwhile, Richmond Fed President Barkin stated that the continued easing of inflation is a positive sign, but the Fed may hold steady at its January policy meeting to observe further inflation trends.
Outlook for Gold Market
Analysts generally believe that gold will continue to benefit in the short term from easing inflation, declining US bond yields, and favorable dollar adjustments. Société Générale analysts stated: "Gold prices may face certain technical resistance near $2,700, but if geopolitical risks intensify or economic data remains weak, gold could break through this psychological barrier."
Additionally, today's market will closely watch the US "scary data" – December's retail sales monthly rate and changes in initial jobless claims. These data may further influence investors' assessment of the Fed's policy path, thereby affecting gold's trajectory.
