Gold continues to decline after the decline it recorded last Friday, with the gold spot price reaching the 1994.50 level at its maximum decline this morning, and COMEX futures falling to the 2009.8 level at the same time as well.
The yellow metal’s declines today came after the pressure it was exposed to with positive US labor market data more than expected from the last Friday.
While gold may try to find some support this week with a further expected decline in the US inflation, in addition to the expected pivoting of interest rates by the Federal Reserve at its last meeting this year.
Inflation is set to decline further this week, reaching 3.1% in November on a previous annual basis, down from 3.2% in the previous reading. It is also expected that retail sales declined during the past month by 0.1% on a monthly basis for both the headline and core readings that exclude automobile sales.
On the other hand, core inflation is heading to rise further to 0.3% on a monthly basis from 0.2% previously, in addition to the expectation that annual inflation will remain stable at 4%.
It is also expected that the Producer Price Index (PPI) will witness a growth of 0.1% on a monthly basis after recording a contraction of 0.5% previously, in addition to an expected growth of 0.2% on a monthly basis as well for the core reading.
If these readings come as expected, this may reinforce the markets’ hypothesis about the direction of inflation on its path, and at the same time it may encourage the Fed to maintain current rates for a longer period than expected, while the upside risks for inflation remain if producer prices continue to rise in light of the increases that may occur in the prices of raw materials and energy commodities in particular.
The persistence of upside risks to inflation will continue to alert the Fed to the extreme danger of cutting interest rates too early, which could fuel inflation in a worrying way, and this is what I believe the Fed will continue to emphasize in its speech this week.
This, in turn, may prevent gold from maintaining any gains it may make this week with inflation figures that may appear encouraging.