After Donald Trump’s election as the Republican candidate for 2024 US president, yellow metal prices have fallen dramatically.
After Trump’s election, the dollar surged as investors increased their risk appetite. This led to a decrease in demand for silver and gold.
As traders awaited the US October inflation figures, the dollar’s rally paused on Wednesday.
Gold prices rose.
The dollar is stronger, and therefore the price of commodities in dollars will be higher for buyers from abroad.
Haresh Menghani of Fxstreet said that a generally weaker tone in the equity market was a major factor supporting the precious metal as a safe haven during the European session.
Menghani is added to the list
A strong dollar makes it difficult to make any meaningful appreciation.
Source: Commerzbank Research
The COMEX Gold contract is currently $2,614.40 an ounce. This represents a 0.3% increase from its previous closing price.
US October CPI to rise?
In the US, the highly anticipated Consumer Price Index data for October will likely show an increase from the month before.
Fxstreet reported that the US Dollar was set to experience intense volatility, likely triggered by the US Inflation Report. This could have a significant impact on the pricing in the market of Federal Reserve’s interest rate forecast for the next few months.
According to FactSet, the consensus estimate is that inflation will increase by 2.6% annually in the US in October as measured by CPI.
This would represent a slight increase over the growth of 2.4% in September.
Fxstreet spoke to analysts at TD Securities:
The Fed’s preferred inflation reading should be slightly firmer in the short-term. This would reverse recent improvements in price change.
What will CPI do to the Dollar?
Trump’s tax cut plans and tariff increase plans are likely to lead to higher US inflation.
The US Federal Reserve is most likely to maintain high interest rates, and this is expected to increase Treasury yields as well as the dollar.
Fxstreet stated that the report on October’s inflation will be a key indicator of the Fed’s next move, given the softening conditions in the labor market and progress made in deinflation.
Focus on Fed Policy
Last week, the US central bank cut interest rates 25 basis points.
The September cut was a massive 50 basis points.
The Fed’s policy meeting in November saw a small cut to interest rates due to the hotter than expected inflation rate in September, and the subsequent improvement in the labor market.
According to CME FedWatch, the markets have priced in a probability of 62.1% that a rate reduction will occur in December.
Source: CME Group
Carsten Fritsch is a commodity analyst with Commerzbank AG. He said that “our economists raised their forecast of the US Key Interest Rate Bottom by 50 Basis Points to 4%” in a recent report.
After the December rate reduction, the Fed will only make two more cuts of 25 basis point each.
Further, he added:
After the elections, it appears that market participants act according to a principle called “buy the rumour and sell the truth”.
Copper Slides
Copper futures fell on Wednesday, as investors remained unimpressed by China’s recent stimulus package.
The People’s National Congress in China approved last week a package worth $1.4 trillion to fund local government debts.
Market participants expected a more focused plan of spending and greater clarity regarding sector-specific spending.
Reports of the rapid increase in China’s metallurgical capacity are also impacting prices.
In the period January to September, copper production was 5% more than it had been in the previous year.
Barbara Lambrecht is a commodity analyst with Commerzbank.
China’s capacity has increased significantly in the last few years. It is likely that China will now account for about half of all global supplies.
The three-month contract for copper on the London Metal Exchange is $9,118.50 a ton at the moment of writing. This represents a 0.3% decrease from its previous closing price.
Prices have dropped to levels that were not reached since mid-September.
Can prices maintain their momentum after this post? This post may change as new information is released
