Gold prices surge to 2-month high as US inflation cools
What's the story
Gold prices have surged to a two-month high, following signs of cooling consumer inflation in the United States. The trend has reduced the chances of an immediate interest rate hike by the Federal Reserve, further boosting gold's appeal. Spot gold rose 0.6% to $4,433.62 per ounce earlier today after hitting its highest since June 5 earlier this week.
Policy implications
Consumer Price Index rose 3.4% in July
The Consumer Price Index (CPI) rose 3.4% in the 12 months through July, down from June's 3.5%. This marks a second consecutive month of year-over-year inflation cooling.
The data is in line with economists' expectations and may lessen the urgency for Fed policymakers to raise interest rates next month.
However, they might not be fully convinced that monetary policy is sufficiently stringent to sustain this easing trend.
Rate hike outlook
Traders see reduced likelihood of September rate hike
Market expectations have also shifted in light of the new data.
Traders are now pricing in a 40% chance of an interest rate hike at the Fed's September meeting, down from about 54% a week ago.
This change is reflected by the CME FedWatch Tool and indicates that lower rates could support gold by reducing the opportunity cost of holding this non-yielding asset.
Economic indicators
Next focus on Producer Price Index data
The focus now shifts to the Producer Price Index (PPI), which is due later today. This will be a key indicator to confirm whether price pressures are indeed moderating.
Notably, the CPI print for July did not account for the recent rise in oil prices amid ongoing attacks on ships in the Middle East and stalled Iran war talks.