Gold prices rose by 0.22%, continuing last week's rally, as the latest US inflation data strengthened investors' confidence that the Fed will begin easing monetary policy at the March meeting. Since the beginning of December, prices have increased by 1.73%. Bullion is also heading for its first annual increase in three years.
Meanwhile, trade is thin as markets in Australia, New Zealand, Hong Kong and the euro zone are closed on Tuesday for the Boxing Day public holiday.
The Commerce Department report, presented on Friday, showed that the core personal consumption expenditure price index - the Fed's preferred measure of core inflation - increased by 0.1% over the month and by 3.2% per year. Economists had expected growth of 0.1% and 3.3%, respectively. In turn, the report from the University of Michigan confirmed the improvement in expectations regarding the prospects for inflation. Americans expect prices to rise by 3.1% over the next year, which corresponds to the preliminary figure and is the lowest value since March 2021. In addition, they expect prices to rise by 2.9% in the next 5-10 years, which is 0.1% higher than the preliminary figure. According to the CME FedWatch Tool, markets see a 75.6% probability of a 25 basis point rate cut at the Fed meeting in March 2024 and a 100% probability of a rate cut in May 2024. Lower interest rates decrease the opportunity cost of holding non-yielding bullion.
“As long as the trend in economic data remains, gold prices may eye another break of the upper consolidation range at the $2,080 level ahead,” IG market strategist Yeap Jun Rong said.
The rise in gold prices was also supported by a fall in the US 10-year bond yield (-2.6 basis points, to 3.882%) and the news that the U.S. military carried out retaliatory precision air strikes in Iraq after a one-way drone attack by Iran-aligned militants left three U.S. troops wounded.