Gold price remains sideways, slightly below $2,040, as investors await United States core PCE Price Index data for January.
Market participants will pay close attention as it is the Fed’s preferred inflation tool. It doesn’t get distorted by base effects and provides a clear view of underlying inflation by excluding volatile items.
Economists forecast underlying inflation data to decelerate to 2.8% from 2.9% in December on a year-on-year basis. The monthly core PCE Price Index data is forecast to have increased by 0.4% against a moderate growth of 0.2% in December.
The economic data is expected to significantly impact market expectations for the timing of Federal Reserve rate cuts.
Ahead of the underlying inflation data, the CME FedWatch Tool shows that interest rates will remain unchanged in the range of 5.25%-5.50% in the next two policy meetings, which will take place in March and May. Traders see a 53% chance for a rate cut by 25 basis points in the June meeting.
The opportunity cost of holding non-yielding assets, such as Gold, would increase if the inflation data remains stubborn. Therefore, hawkish commentaries from Fed policymakers have been maintaining downward pressure on the Gold price.
On Wednesday, New York Federal Reserve President John Williams said the decision on rate cuts will be dependent on incoming data. Williams added that the central bank has come a long way to bring down inflation to the 2% target, but there is more work to do.
Boston Fed Bank President Susan Collins sees the Fed’s path returning to 2% as bumpy due to tight labor market conditions and higher inflation readings in January. Collins expects that the Fed will start reducing interest rates later this year.
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