Gold prices surge on US inflation data, hitting $5,000
What's the story
Gold prices have witnessed a significant surge, rising by 2.2% after the release of US inflation data. The data has increased expectations of potential Federal Reserve rate cuts, prompting traders to buy gold following Thursday's sharp selloff. The rise in gold prices is a response to the mild inflation reading at the start of the year, which has eased fears of a larger spike and bolstered hopes for Fed rate reductions.
Market reaction
Gold's rise amid falling Treasury yields
The yield on the 10-year Treasury bond fell after the inflation data was released, with swap traders estimating about a 50% chance of a third rate cut by December. This development has further contributed to gold's rise by as much as 2.5%. Lower interest rates usually favor non-yielding assets like gold, making them more attractive to investors.
Price fluctuations
Gold's recent price fluctuations and market correction
Gold hit a record high of over $5,595 in late January due to speculative buying. However, a sudden market correction at the month's end brought it down below $5,000 an ounce. Despite these volatile price movements, gold is on track for a positive weekly close. "The broader backdrop remains one of elevated volatility following this week's sharp liquidation across precious metals," said Ewa Manthey from ING Bank.
Market stabilization
Anticipated stabilization in precious metals market
The Chinese markets will be closed next week for the Lunar New Year holiday. This could lead to a temporary stabilization in precious metals, given China's recent frenzied demand for these commodities. Commerzbank analysts predict that "precious metals should continue to consolidate for a while as Chinese market participants who had been behind some of the volatility, particularly in silver, are on holiday."