Gold Rallies Amid US Inflation Slowdown as Market Eyes Softer Fed Policy Stance

Published 16-01-2025, 04:58 pm
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Gold markets are on a strong upward trajectory, with Comex Gold futures trading above $2,736 per ounce. This rally comes on the heels of softer-than-expected U.S. core inflation data, which has fueled speculation about a potential easing of monetary policy by the Federal Reserve. The market now anticipates a high probability of two interest rate cuts before the end of the year.

The decline in inflation has directly impacted bond yields, which have fallen, and the U.S. dollar, which has weakened. These factors traditionally bolster gold prices by increasing its appeal as an alternative asset. While the Fed has acknowledged this positive inflation trend, they have also expressed caution, citing uncertainties surrounding the incoming administration’s policies. Among these uncertainties is the potential for increased tariffs, which could reignite inflationary pressures and complicate the Fed's policy decisions further.

Despite the bullish momentum in gold, gains have been tempered by geopolitical developments, including a ceasefire agreement between Israel and Hamas. This agreement has eased immediate risks in the region but introduced another layer of complexity to the global economic outlook.

Crude Oil Near Six-Month Highs Amid Supply Concerns :

WTI crude oil futures are trading just below $79 per barrel, maintaining levels near a six-month high. This follows a significant 3.3% surge in the previous trading session, driven by growing concerns over global supply disruptions. The International Energy Agency (IEA) has warned of a tighter oil market in 2025, exacerbated by new U.S. sanctions on Russia and Iran.

Adding to these supply constraints, U.S. crude inventories have declined for eight consecutive weeks, reaching their lowest levels since April 2022. This represents the longest drawdown streak since 2021 and has pushed inventories to a six-year seasonal low. While the ceasefire in the Israel-Hamas conflict has temporarily mitigated some supply risks, the market remains on edge about further disruptions.

OPEC has maintained its forecast for global oil demand growth, projecting an increase of 1.43 million barrels per day by 2026. This forecast underscores the sustained demand for crude, even as the market navigates ongoing geopolitical and economic uncertainties.

Base Metals and European Natural Gas Prices: Mixed Trends :

The base metals market is showing positive momentum, supported by declining U.S. core inflation data, which has strengthened expectations of additional Federal Reserve interest rate cuts. This policy shift is expected to stimulate demand for commodities. Additionally, hopes for stronger Chinese economic stimulus and a decline in Chilean copper production have bolstered market sentiment.

  1. Aluminum: LME aluminum prices rose by more than 1.2% to $2,666 per ton, buoyed by potential EU import restrictions on Russian supplies and slowing Chinese production growth. Russian aluminum exports to Europe have already declined due to self-sanctioning by manufacturers.
  2. Copper: LME Copper is trading near a two-month high of $9,250 per ton. This surge is partly attributed to Chile’s revised production forecasts, signaling lower output.
  3. Other Metals: Zinc and Lead prices on the LME also experienced gains, rising 0.30% and 1.2%, respectively.

Meanwhile, European natural gas prices have declined to €46 per megawatt-hour, despite increased demand due to colder weather. Gas storage levels are lower compared to last year, but current supply levels are sufficient to prevent immediate shortages. Weather forecasts predict colder-than-normal temperatures in northwest Europe from January 17-22, coupled with weak wind power generation, which is likely to increase reliance on natural gas.

Market Focus: Key Economic Data Releases

Investors are closely monitoring a series of key economic data releases scheduled for today. These include U.S. retail sales reports, unemployment claims, and manufacturing index data. Additionally, natural gas storage data will provide further insights into supply trends.

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