First Time in Two Months: Gold Falls below $2,000/Oz Post US Inflation Data

Credit: Reuters

Gold prices plunged below the significant $2,000 per ounce threshold to a two-month low on Tuesday, driven by a stronger-than-expected U.S. inflation report. Spot gold dropped 1.3% to $1,993.29 an ounce, its lowest level since December 13, while U.S. gold futures settled 1.3% lower at $2007.2.

The inflation data revealed a higher-than-anticipated increase in U.S. consumer prices, particularly in shelter and healthcare costs. This unexpected inflationary pressure reduced the likelihood of an early interest rate cut by the Federal Reserve, prompting traders to adjust their expectations. Analysts suggest that Fed policymakers may delay rate cuts until June, as higher interest rates elevate the opportunity cost of holding gold.

Consequently, the dollar surged 0.7% to a three-month high against its counterparts, amplifying gold's cost for holders of other currencies. Additionally, the U.S. 10-year Treasury yield witnessed an uptick following the release of the inflation figures.

Investors will shift their attention to retail sales data scheduled for release on Thursday, followed by producer price index (PPI) numbers on Friday. Additionally, market participants will closely monitor comments from numerous Federal Reserve officials throughout the week.

Credit: Kitco Commentaries

The U.S. Bureau of Labor Statistics reported a 0.3% increase in the Consumer Price Index for All Urban Consumers (CPI-U) in January, following a 0.2% rise in December. Over the past year, the index rose by 3.1%. The spike in inflation was primarily driven by a 0.6% increase in the shelter index, contributing two-thirds of the overall monthly increase, while food prices also saw a 0.4% rise. However, the energy index fell by 0.9% due to lower gasoline costs.

Federal Reserve officials, including Chairman Powell, have emphasized the need for more evidence that inflation is decreasing before considering a rate cut. Powell stated that a rate cut in March is unlikely, with May or June being more probable. According to the CME's FedWatch tool, there is a low probability of a rate cut in March, with higher probabilities in May and June.

Following the release of the CPI report, U.S. Treasury yields increased, with the yield on 10-year treasury notes rising by 10 basis points to 4.273% and the yield on 30-year bonds rising by seven basis points to 4.437%.