The price of gold jumped another 0.75%, continuing its recent rally, as the latest US inflation data reinforced expectations of two Fed rate cuts this year.
Yesterday, the Labor Department reported that the U.S. consumer price index climbed by 0.4% in December after rising by 0.3% in November. Economists had expected consumer prices to rise by 0.3%. The annual rate of growth by consumer prices accelerated to 2.9% from 2.7% in November, in line with economist estimates. Meanwhile, core consumer prices rose by 0.2% after increasing by 0.3% for four straight months. The uptick matched expectations. The annual rate of growth by core consumer prices slowed to 3.2% from 3.3% in November, while economists had expected yearly growth to remain unchanged. Markets now expect the Fed to cut rates by 40 basis points by the end of 2025, up from about 31 basis points before the release of inflation data. According to the CME FedWatch Tool, markets see a 2.7% probability of a 0.25% rate cut in January (compared to 6.4% a week ago), while the probability of an additional rate cut in March is 27.3%.
Meanwhile, investors are concerned that potential tariffs after Donald Trump's return to the White House could spur inflation and limit the Fed's ability to cut rates. Non-yielding bullion, a hedge against inflation, loses its appeal with higher interest rates.
Investors also focused on the situation in the Middle East. The media initially reported that Hamas and Israel had reached a cease-fire agreement in Gaza after 15 months of conflict. However, today there were reports that the PM's office claims Hamas backing out of some agreements, delaying cabinet vote on deal. However, Hamas officials deny the accusation, saying the group committed to a deal presented by mediators.