Gold prices drop ahead of U.S. inflation data

 

Investors were enjoying last week that sent Wall Street sky high. The rally in the U.S. was nothing short of remarkable, but still, there are fears regarding global growth, and the Covid Delta variant. With these in mind, it is no wonder that many are raising their doubts about inflation.

Traders will be keeping a keen eye on the market this week. Gold prices are dropping on Monday on continuing concerns around the pandemic, with investors closely monitoring Tuesday’s consumer price index data and Powell’s speech before Congress on Wednesday to get further insight on the Central Bank’s policy tightening. Gold futures were down 0.4% to $1,803.35 by 12:38 AM ET in Asia.

 

 

Is inflation imminent?

U.S. core consumer price index (CPI) for June is due on Tuesday. There are a lot of questions regarding the recovery of the U.S. economy. Right now, shortages of materials and difficulties in hiring are holding it back. These elements are one of the key drivers of inflation according to the U.S. Federal Reserve. Additionally, the news surge in the coronavirus variants paired with lacking access to vaccines in developing countries is threatening the global economic recovery.

Lack of demand

Last week saw a decreased demand for physical gold in India as traders were discouraged by the rise in price. While the demand was slightly improving after the government eased on the Covid restrictions, the sudden jump in price was too overwhelming for traders. Additionally, data from the U.S. Commodity Futures Trading Commission also noted that speculators raised their net long positions in COMEX gold.

Institutional impact

U.S. Federal Reserve Chair Jerome Powel will testify before the banking committee this week. His report will be closely inspected for any clues regarding the timeline for asset tapering. Over in Europe, the European Central Bank is expected to update its guidance on the next monetary policy in the following days. U.K.’s Prudential Regulatory Authority declared their decision “to amend our approach to precious metal holdings related to deposit-taking and clearing activities”. This could mean that the banks who trade gold could apply for an exception from tighter capital rules expected to take place from January 2022.

Gold traders are facing a really important week ahead with a lot of unknown parameters. While the impact of the evolving coronavirus is difficult to predict, investors will be looking to make the most out of this weeks’ events in the U.S. Trading around it could prove challenging, but the overall volatility of the market is bound to intrigue a lot of traders. Gold has always been and still remains to be one of the most sought after assets due to its intrinsic values. Traditionally, whenever the value of paper investments such as bonds and stocks goes down, there is an increase in the value of gold. Its price can be volatile in the short term, but it has always maintained its value over the long term.

 

Meta Description: Gold prices are quickly dropping due to big upcoming market events. Traders will be keeping a close eye to U.S. inflation data.

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