Gold Prices Dip Ahead of Key US Inflation Data

Gold prices retreated on Monday, as investors awaited key US inflation reports that could shed light on the timing of the first Federal Reserve interest rate cut.

Gold and the Dollar Now

Gold futures are now down 0.75% to $2357 an ounce. Spot gold is down about 0.4% to $2351 an ounce. Prices had hit a two-week high in the previous session. On the other hand, the dollar index is flat at 105.190 points.

Other Metals

Silver fell 0.4% to $28.03 an ounce in spot trading, platinum slipped 0.1% to $992.89, and palladium was flat at $978.03.

Yen Deepens Losses to Two-Week Low on Thin Trading

The Japanese yen weakened against a basket of major and minor currencies in Asian trading on Monday, extending its losses for the second straight day against the US dollar and hitting a two-week low on thin trading at the start of the new week.

Over the next few days, the market is awaiting US inflation data for April and Japanese growth data for the first quarter of this year, which will provide new pricing for the existing possibilities around the future of US and Japanese interest rates this year.

This comes as hawkish comments from Japanese ruling party veteran Katsumobu Kato failed to provide positive support for the Japanese yen in the foreign exchange market.

Key Data

Traders are awaiting key data on US inflation levels for April and Japanese growth data for the first quarter of this week.

This data will provide new pricing for the existing possibilities around US interest rate cuts and potential Japanese interest rate hikes, which will affect the current US-Japan interest rate differentials.

Hawkish Comments

In an interview with Reuters on Friday, Japanese ruling party veteran Katsumobu Kato said Japan is setting the stage for the central bank to normalize monetary policy, highlighting growing political support for further interest rate hikes.

“Japan is entering an era of rising prices and wages, from an era when they barely moved,” said Kato, a former chief cabinet secretary, who some analysts see as a potential future prime minister. “So it is natural for monetary policy to return to the original style where interest rates move into positive territory reflecting market function,” Kato added.

“The key to deciding whether to actually raise interest rates is the Japanese economy, especially consumption, which is not necessarily strong,” Kato said. When asked if the yen was too weak, Katsumobu Kato said he was more concerned about the impact of a weak yen on inflation than its levels in the forex market.

“The recent weakness of the yen reflects not just the large interest rate differential between Japan and other countries, but also structural changes in the Japanese economy,” Kato said. He added that with many Japanese companies shifting production overseas, a weaker yen is no longer leading to a sharp rise in exports, calling for Japan to revitalize its economy by attracting investment from abroad.

Traders: Here’s What to Watch This Week… Key and Decisive Market-Driving Events

US inflation data will be at the forefront of investors’ minds this week and could be the key determinant of the near-term direction of markets. Meanwhile, retail sales data, along with earnings results from some big-name retailers, will provide fresh insights into the strength of consumer spending, a key driver of the economy. The UK and China are also due to release economic data that will be closely watched.

Inflation Data

Investors will look to US producer and consumer prices this week for any sign that price pressures are finally starting to ease after months of strong inflation that has raised concerns that the Federal Reserve may not cut rates this year

The markets got some relief earlier this month when Federal Reserve Chairman Jerome Powell indicated that the central bank still intends to cut rates eventually, and the latest US jobs report showed signs of a cooling labor market.

Analysts expect the key Consumer Price Index (CPI) report due Wednesday to show core inflation rising 3.6% on an annual basis, which would be the smallest increase in more than three years.

Retail Earnings

Investors will get some fresh insights into the health of the US consumer this week with retail sales data for April on Wednesday, as well as earnings results from retail giants Walmart (WMT) and Home Depot (HD).

So far, bulls have taken heart from the strong earnings season. Highlights included generally strong reports from most of the so-called FAANG tech and growth giants, whose stocks helped drive the market higher last year and still carry significant weight in the S&P 500.

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