Gold held back by a higher dollar although core inflation expected to decline

As of 4:43 PM ET gold futures basis the most active February contract is trading higher by $2.50 or 0.12% and fixed at $2036. Concurrently the dollar is also up fractionally, yielding gains today of 0.21% taking the dollar index to 102.521.

Trading was muted today as market participants await the Bureau of Labor Statistics inflation report, the CPI for December, which will be released at 8:30 AM ET on Thursday, July 11. Currently, core inflation stands at 4% with economists’ forecasts predicting that inflation will show a year-over-year decline of 0.2% taking core inflation to 3.8%. Economic forecasts are also predicting an increase in headline inflation with Thursday’s report expected to reveal that headline inflation continued to rise last month by 0.2% which would take this inflationary gauge to 3.2% year-over-year.

Market participants and traders will glean this report, hoping to gain insight as to when the Federal Reserve will initiate its first interest rate cut this year. According to the CME’s Fedwatch tool, there is a 95.35% probability that the Federal Reserve will maintain its current level of interest rates between 5 ¼% and 5 ½% at the January FOMC meeting, which will conclude on the 31st of this month. 

According to traders, the odds of ¼% rate cut at the March FOMC meeting are over 50%. The CME’s Fedwatch tool indicates there is a 62.7% probability that the Federal Reserve will initiate its first rate cut of the year in March taking Fed funds rates to between 5% and 5 ¼%, with a 34.3% probability that the Fed will maintain its current interest rate level.

However, the probabilities favor that by the May FOMC meeting, the Federal Reserve will have reduced interest rates by at least ¼%. There is only a 6.5% probability that the Federal Reserve will not have initiated any rate cuts, a 39.7% probability that interest rates will have been reduced by ¼%, and a 51.5% probability that rates will be a full half a percent lower. Finally, this probability indicator suggests a 2.4% probability that interest rates in May will be between 4 ½% and 4 ¾%.

Wishing you as always good trading,