Gold fell moderately on Tuesday, updating the October low, which was caused by the recent strengthening of the US currency. Investors are also adjusting their positions ahead of the publication of the minutes of the last Fed meeting and US inflation data.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.16% to 102.38, but remains near its highest level since August 16. Since the beginning of October, the index has grown by 1.6%, making bullion more expensive for holders of other currencies.
Meanwhile, demand for gold, considered a safe haven asset, remains elevated amid escalating tensions in the Middle East. Hezbollah fired rockets at Israel's third-largest city, Haifa, while Israel appeared ready to expand its offensive into Lebanon. Bullion is considered a safe investment during times of political uncertainty.
Gradually, the focus of investors' attention is shifting to the minutes of the Fed's September meeting (to be released on Wednesday) and CPI data for September (to be published on Thursday), which will help clarify the Fed's further actions. Several Fed officials are also lined up to speak throughout the week. The overall consumer price index rose 2.5% year-on-year in August, helped by clear deflation in the goods sector and a general decline in food and energy prices. Nevertheless, sustained price pressures in the services sector restrained a further decline in monthly inflation, which grew at the fastest pace in four months in August. Housing remained the main culprit of sustained inflation in the service sector. Despite a clear slowdown in private sector rental growth, housing inflation accelerated by 0.5% in August, the second highest rate this year. The core CPI, in turn, increased by 0.3% on a monthly basis (0.28% without rounding). Experts still believe that housing inflation should slow down more significantly in the coming months. In general, the core CPI is expected to grow by 0.2% per month and 3.2% per annum in September. Meanwhile, lower prices at gas stations paved the way for a more significant decline in the overall consumer price index - the index is estimated to have increased by only 0.1% in September. If the forecast is confirmed, the overall inflation rate will drop to 2.3%, which corresponds to the inflation rate immediately before the pandemic in February 2020. But if the CPI data exceeds forecasts, this could further boost the dollar and pressure gold. According to the CME FedWatch Tool, markets see a 85.8% probability of a 0.25% rate cut at the November meeting (compared to 63.2% a week earlier) and a 72.6% probability of a 0.25% rate cut in December (compared to 32.6% a week earlier), with a 0.5% rate cut expected by the end of the year.