Persistent inflation supports, gold prices rise

Safe-haven demand and technical chart buying momentum remain prominent factors in the gold market this week, according to Kitco senior analyst Jim Wyckoff.

The most important economic report from the US this week is the US consumer price index (CPI) which increased by 0.3% in November compared to the same period last year. The US Bureau of Labor Statistics announced on Wednesday that the CPI rose by 0.3% last month, following a 0.2% increase in October. The inflation data was in line with forecasts.

Headline inflation rose 2.7 percent in the 12 months to October, also in line with forecasts and up from September's 2.6 percent, the report said.

Core CPI, which excludes volatile food and energy prices, rose 0.3% in November, in line with expectations and the same as September's increase. The report also noted that annual core inflation rose 3.3% last month, unchanged from October's reading and in line with expectations.

Although inflation has moved higher, there have been no major surprises to rattle investors. The gold market is seeing some light buying but remains near neutral territory.

The Federal Open Market Committee (FOMC) monetary policy meeting of the US Federal Reserve (FED) is taking place next week. While inflation remains a concern, today's CPI report is unlikely to change the monetary policy path the Fed is considering. The CME FedWatch tool shows that the probability of the Fed cutting interest rates by 25 basis points is about 85%.

However, uncertainty around the easing cycle in 2025 continues to grow. Factors such as rising inflation, slower monetary policy, and new economic policies from the US President-elect could all support gold prices in the short to medium term, said Michael Brown, senior market researcher at Pepperstone.

“Risks around the monetary policy outlook will become increasingly balanced in the first quarter of next year. Policymakers will be primarily concerned about the risk of rising inflation from US President-elect Donald Trump’s tax plans, as well as renewed fiscal stimulus, as strong demand could continue to put upward pressure on prices.

Overall, the pace of policy normalization is likely to slow significantly in 2025, with the FOMC taking a more cautious path as rates approach neutral, expected to be around 3%," he added.

Elsewhere, the Bank of Canada cut its overnight interest rate to 3.25% on Wednesday, with the bank rate at 3.75% and the deposit rate at 3.25%.

"Monetary policy is working to bring inflation back to our 2% target. Our focus now is on maintaining stable inflation near that level," said BoC Governor Tiff Macklem.

Mr. Macklem explained the economic factors the BoC is monitoring and how they influenced the decision to cut interest rates by another half percentage point. The BoC’s decision to cut interest rates creates favorable conditions for gold prices to be supported in both the short and medium term.