Gold trades in positive territory ahead of US inflation data

Gold prices rose in European trading on Thursday, remaining in positive territory for a second consecutive day, supported by continued weakness in the US dollar and a pause in the rise in US Treasury yields ahead of key US inflation data for August.

The data are expected to provide crucial signals about the likelihood of the Federal Reserve raising interest rates when it meets next week to discuss the appropriate monetary policy stance for developments in the world’s largest economy.

The Price

• Gold prices today: Gold rose 0.75% to $4,435.10, from an opening level of $4,402.03, after recording a session low of $4,389.81.

• At Wednesday’s settlement, gold prices gained 1.1%, marking their first daily advance in four sessions as prices recovered from a one-week low of $4,341.40 an ounce.

US dollar

The US dollar index fell on Thursday, extending losses for a fourth consecutive session and approaching its lowest level in three weeks, reflecting continued weakness in the US currency against a basket of major and minor currencies.

As is widely known, a weaker US currency makes dollar-denominated gold more attractive to buyers holding other currencies.

The dollar’s decline comes amid renewed pressure from the administration of President Donald Trump on the Federal Reserve to cut interest rates in the near term.

US Treasury yields

The yield on the 10-year US Treasury note fell 0.25% on Thursday, retreating from its highest level in three years and adding further downward pressure on the US dollar.

The US Treasury Department announced on Wednesday that it plans to buy back up to $6 billion of long-term debt starting Thursday, in a move aimed at managing the debt structure and improving market liquidity conditions. The Treasury had previously said that buybacks would amount to at least $4 billion per operation.

US interest rates

• According to CME’s FedWatch Tool, the probability of the Federal Reserve leaving interest rates unchanged at its September meeting currently stands at 38%, while the probability of a 25-basis-point rate hike stands at 62%.

• The probability of the Federal Reserve leaving interest rates unchanged at its December meeting currently stands at 12%, while the probability of a 25-basis-point rate hike stands at 88%.

• Investors are awaiting US producer price data later on Thursday to reassess those expectations, followed by August consumer price data on Friday.

Gold outlook

We expect that if US inflation data come in softer than markets currently anticipate, expectations for a Federal Reserve interest rate hike in September will decline. This would likely put further downward pressure on the US dollar and Treasury yields, supporting gains in gold and other precious metals.

SPDR Fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were virtually unchanged on Wednesday, leaving total holdings at 1,050.63 metric tons, their lowest level in a week.