Gold prices fell below $2,000/oz, reaching a two-month low, in Tuesday’s trading session (February 13th), as inflation data showed higher-than-expected inflation in the U.S., diminishing the possibility of the Federal Reserve (Fed) starting interest rate cuts in May. Compared to the pre-Tet holiday period, the international gold price has now dropped by about 1 million VND/tael.
Closing in New York, spot gold prices fell $27/oz, equivalent to a decrease of about 1.3%, closing at $1,993.5/oz. This is the first time gold prices have fallen below the $2,000/oz mark since the beginning of the year and the lowest closing price for this precious metal since mid-December 2023.
According to a report from the U.S. Department of Labor, the consumer price index (CPI) for January increased by 0.3% compared to the previous month and by 3.1% compared to the same period last year. In a previous survey by Dow Jones, economists had forecast a month-on-month increase of 0.2% and a year-on-year increase of 2.9%.
The core CPI, which excludes the heavily fluctuating food and energy sectors, recorded a 0.4% increase compared to the previous month and a 3.9% increase compared to the same period last year. Experts had predicted a 0.3% increase for the month and a 3.7% increase for the year, both lower than the actual figures.
“This is not the report the market wants to see,” said independent precious metals analyst Tai Wong in New York, commenting on the CPI report. “Those who bet on the Fed’s softness are at a disadvantage because stubborn inflation is reducing the probability of the Fed starting rate cuts in May to below 50%.”
Recent stable economic and labor market conditions in the United States have virtually eliminated the possibility of the Fed reducing interest rates in March. The latest CPI data also reduces the chances of the Fed starting rate cuts in May.
Instead, the market is betting more on the monetary policy meeting of the Fed on June 11-12. According to data from the CME’s FedWatch Tool, the likelihood of a 0.25% interest rate cut by the Fed in the June meeting is nearly 75%. Meanwhile, the chances of the Fed taking action in the April 30-May 1 meeting have decreased to just over 36% from nearly 61% previously.
Expectations of higher interest rates for a longer period of time are putting pressure on gold prices. This precious metal is a non-interest bearing asset, so a high interest rate environment increases the opportunity cost of holding gold.
In addition, rising U.S. bond yields and the USD exchange rate following the U.S. CPI data are also putting downward pressure on gold.
The yield on 2-year U.S. Treasury bonds climbed above 4.66% and the yield on 10-year bonds crossed 4.32%. The Dollar Index, which measures the strength of the USD against a basket of 6 major currencies, rose 0.7% to nearly 105 points, the highest level in 3 months.
According to a report by TD Securities, the CPI report has triggered a sell-off by “big players” in the gold market, but the gold price needs to slide to $1,950/oz to trigger another algorithm-based sell-off.
After the CPI report, investors’ attention will be focused on the retail sales report on Thursday and the producer price index (PPI) on Friday, as well as the statements of Fed officials. Last week, several Fed officials, including Chairman Jerome Powell, expressed a cautious view on rate cuts, saying they wanted more data on the sustainability of inflation.
The world’s largest gold exchange-traded fund (ETF), SPDR Gold Trust, experienced net selling in Tuesday’s session, with net sales of about 1.5 tons of gold, reducing holdings to 840.5 tons. Last week, the fund sold about 10 tons of gold.
Based on the USD selling rate at Vietcombank, the current world gold price is approximately 59 million VND/tael. Prior to the Tet holiday, the international gold price was still around 60 million VND/tael. Thus, within just one week, the international gold price has “evaporated” 1 million VND/tael.
