Lower inflation figures in the US and UK have helped gold bounce back from it’s recent dip. Markets now firmly believe that interest rates have peaked, and that cuts could begin in 2024.
The latest inflation figures for the US showed an annual change of 3.2% for October versus 3.7% in September. The lower-than-expected figure puts the US closer to its 2% target, and with US interest rates at a range of 5.25 – 5.5% they are firmly above inflation. Markets are confident then that US rates will not rise further, resulting in the dollar falling over 1% in just a few hours yesterday.
The drop in the dollar gave gold a significant boost in USD. Gold had fallen as low as $1,932.32 per ounce Monday morning as markets moved away from geopolitics towards more fiscal concerns. The weaker dollar has pushed gold up to $1,974.24 so far today, the highest gold has been in over a week.
UK CPI also surprised markets with a much lower figure than expected. The UK has been lagging behind the rest of the world with higher inflation, but today saw CPI for October come in at 4.6% compared to September’s 6.7%. The UK economy is faltering, with GDP flat for Q3, and it seems high interest rates are beginning to feed through and have an effect. The Bank of England will be happy to see inflation finally coming down at a greater pace than seen recently, although CPI still remains more than double their target.
As in the US, markets now believe UK rates will go no higher, and are currently forecasting for rate cuts to start in May 2024. Whether that forecast is premature or not, the pound has had a volatile week. The weaker dollar initially saw the pound climb to a monthly-high of $1.2504, but this morning’s news has seen it pull back slightly to $1.24597.
Gold in GBP has been pushed down by the stronger pound, falling to a monthly low of £1,570.47 late last night. This morning has seen a slight recovery however and gold is now back above £1,580. Currency strength has been a big driver for the price throughout 2023, and gold and silver have been waiting for signs of interest rates peaking and eventually pivoting to cuts. Today’s news then is a big positive for the metals and sets them up for further potential gains in 2024 should the current trend continue.