Surprising US inflation data triggered a dramatic fall in gold prices last week. “The price chart shows one great ‘waterfall’ “, states a market expert, who also predicts what might affect gold prices in the upcoming months.
Last week was very eventful for the gold market, especially when it comes to the price of the precious metal expressed in US dollars.
“The data on inflation in the United States surprised financial markets. For the first time in over two months, gold dove below the support barrier of 2000 dollars per ounce. Hence, the drop was drastic,” explains Michał Tekliński, a gold market expert from Goldsaver.pl.
No interest rate cut after all?
Consumer inflation (CPI) in the US fell to 3.1% on a year-on-year basis in January, down from 3.4% in December 2023. However, this was higher than market consensus, which had predicted a fall to 2.9%.
“This puts the Federal Reserve’s plans for an interest rate cut in the United States into question. As of today, markets estimate that this reduction will not take place anytime soon. Almost 90% of analysts suggest that rates will remain unchanged in March, as the Fed will continue to effectively combat inflation,” Tekliński elaborates.
Though by the end of the week, the price of gold rebounded to over $2000 an ounce. As the expert from Goldsaver.pl emphasizes, this was because US retail sales data were not as good as markets had expected, which in turn positively impacted the price of gold.
Trump continues to shock
Current news from the US, especially the behaviour of the dollar and the gold market, will be significantly impacted by daily updates from the US. In particular, the United States is becoming increasingly engrossed in its presidential campaign. Trump’s recent statement not only shook the American public opinion but especially Europe.
“Trump announced that if NATO member states do not fulfill their commitments regarding allocating adequate financial resources for military strengthening, he — acting on behalf of the US — will not protect them in the event of a potential attack by Russia, but might even ‘encourage’ the Russians to attack these countries,” Tekliński comments.
The American government, the White House and President Biden immediately denied this information, assuring that the United States would always fulfill its obligations and support its allies. Nevertheless, this will undoubtedly impact how markets respond to the prospect of Donald Trump returning to the US presidency.
Russia to launch nuclear weapon into space?
The price of gold could also be affected by a confidential piece of information that leaked from the US Congress concerning a potentially significant threat from Russia.
“It quickly turned out that it is not an imminent, direct threat, but rather that Russia is developing technologies to place weapons, potentially nuclear ones, on orbit. These would not be meant for attack but rather to influence how US satellite systems aid military operations,” Tekliński explains.
As Michał Tekliński emphasizes – although this is not a particularly significant threat, one must take into account that Russia is developing such technologies and try to counteract them. For Poland, as a NATO member, it is a clear signal that an arms race will also be part of our reality in coming years.
Inflation in Poland is heading towards its target
The third piece of information from last week, important for the wallets of Poles, refers to January’s inflation reading in our country. According to preliminary data from the Central Statistical Office, it was at 3.9%, while in December of the previous year it was 6.2%.
“Inflation continues to fall, and this decrease is larger than analysts’ predictions. The markets assumed it would slightly exceed 4%. This brings us closer to the forecast that we will reach the inflation target, i.e., 2.5% inflation growth year-on-year, in March. This implies that the National Bank of Poland (NBP) might consider a potential interest rate reduction. However, several indications suggest that this low inflation result may be incidental and only refer to one month. This is not reason enough to reduce interest rates,” Tekliński highlights.
Therefore, we should rather expect that interest rates in Poland, and consequently the cost of loans, will not fall quickly.
“This, of course, affects the strength of the złoty and thus directly impacts the price of gold. It is worth following the announcements and moves of the Monetary Policy Council carefully because the Polish government has several important decisions to make, concerning for example VAT on food and the protection of energy prices. These will determine whether high inflation will return,” concludes the Goldsaver.pl expert.
