Gold prices edged higher in early trading Wednesday as US Treasury yields inched lower, although persistent inflation and the prospect of further Federal Reserve tightening continued to limit gains in precious metals.
At the time of writing, spot gold was trading near $4,132.70 an ounce, up 0.22%. Spot silver moved in the opposite direction, down 0.58%, to around $57.61 an ounce.
The benchmark 10-year US Treasury yield stood near 5.08%, down one basis point for the day. The U.S. dollar index, which measures USD against a basket of other major currencies, edged 0.05% higher from Tuesday’s close, while oil prices remained elevated despite a slight dip.
Inflation keeps interest rates in focus
Investors continue to weigh signs of weakening economic activity against inflation readings that remain uncomfortably high.
September’s consumer price index rose 0.6% month over month and 3.7% year over year. Producer prices also climbed sharply, increasing 1.3% from August and 6.3% compared with a year earlier.
The data have complicated the outlook for monetary policy, with markets increasingly focused on whether the Federal Reserve will hold rates steady at its upcoming meeting or extend its tightening cycle.
According to market pricing, investors see an approximately 83% probability that the Fed will leave interest rates unchanged at its October 27-28 meeting.
Expectations for December remain more hawkish, with markets assigning a 94% probability to a rate increase at the December 9 meeting.
The Fed is currently in its premeeting communications blackout, leaving incoming economic data to shape expectations ahead of the next policy decision.
For gold, lower Treasury yields can provide support by reducing the opportunity cost of holding a metal that does not generate interest income.
However, continued inflation pressure and expectations of higher rates could limit further gains.
Economic data could shape gold’s direction
Investors will have several data points to assess this week as they look for clues about the strength of the economy and the Fed’s policy outlook.
Wednesday’s calendar includes the US petroleum inventory report, scheduled for 10:30 a.m. EDT, and a $20 billion auction of 20-year Treasury bonds at 1 p.m. EDT.
Initial jobless claims are due Thursday, followed on Friday by preliminary October purchasing managers’ indexes at 9:45 a.m. EDT and the University of Michigan’s final September consumer sentiment survey at 10 a.m. EDT.
Weaker employment or business activity data could ease pressure on Treasury yields and support gold. Conversely, persistent inflation expectations or stronger-than-expected economic readings could reinforce expectations of further monetary tightening, weighing on non-yielding precious metals.
Oil prices ease
Oil prices retreated on Wednesday after preliminary data from analytics firm Kpler showed that crude shipments from Gulf producers, excluding Iran, had recovered to prewar levels.
Exports averaged 24.6 million barrels per day in the latest week, exceeding the prewar average of 23.3 million barrels per day.
The data helped ease immediate supply concerns, pushing Brent crude lower after it had climbed above $111 a barrel earlier in the session.
However, shipments through the Strait of Hormuz remained around a third below prewar levels, leaving the market exposed to further disruption.
For gold, the pullback in oil prices could ease some inflationary pressure and reduce concerns about further Federal Reserve tightening.
However, continued risks to Gulf shipping could keep energy prices elevated, complicating the outlook for inflation and interest rates.
Geopolitical risks can encourage safe-haven demand for gold, while higher oil prices may fuel inflation and strengthen expectations that interest rates will remain elevated for longer.
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