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Gold has climbed to its highest level in a month, trading above $2,700 an ounce, driven by a significant shift in market expectations following surprisingly moderate U.S. core inflation data.
The consumer price index, excluding food and energy, rose just 0.2% after four consecutive months of 0.3% increases, suggesting the Fed may have more flexibility to cut rates sooner than previously anticipated.
This development has caused a notable market reaction, with Treasury yields and the dollar declining, enhancing gold’s appeal as a non-yielding asset.
Swap traders have adjusted their expectations, now fully pricing in a rate cut by July – a marked change from recent predictions of September or October following strong employment data.
While Fed officials express optimism about declining inflation pressures, they maintain a cautious stance about the complete victory over price stability, echoing the conditions that helped drive gold to record highs last year.
