Gold Rebounds Rapidly After CPI
Spot gold rose 1.6% to $4,385.14 per ounce on Friday, while US gold futures gained 0.5% to $4,426.90. Prices quickly recovered after a nearly 2% drop the previous day, indicating renewed buying interest at lower levels.
Traders believe gold is searching for a short-term bottom after its recent pullback. Although it still fell about 1% for the week, the post-CPI movement suggests there is support above $4,300.
Inflation and Rate Hikes Create a Tug of War
U.S. August CPI rose 0.4% month-on-month, higher than July's 0.1%; it increased 3.4% year-on-year, unchanged from July. Rising energy prices continue to reinforce market concerns about inflation.
CME FedWatch indicates the probability of a Fed rate hike next week has increased from 67% before the data to 85%. Gold can hedge against inflation, but higher interest rates increase the opportunity cost of holding a non-yielding asset, creating a tension between these two forces.
Divergence in Asian Physical Demand
Gold demand in India remains sluggish due to price volatility, with consumers and jewelers being more cautious; investment demand in China remains strong, providing another layer of support for the market.
Silver, platinum, and palladium also rebounded on the day, but they remained under pressure on a weekly basis. Whether gold can solidify its short-term bottom will depend on the FOMC's wording, real yields, and whether the Middle East situation continues to drive safe-haven demand higher.
