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Gold was under pressure after 12:30 p.m. GMT with the release of the July reading of the US Consumer Price Index (CPI).
The pressure on gold came despite the unexpected slowdown in year-over-year inflation and the acceleration in monthly price growth.
I believe today’s figures and the size of the surprise were not those that would have fed the hypothesis of 50bp emergency rate cut in September or concerns about the health of the US economy.
In other words, the higher-for-longer rates scenario got some boost today and that may explain the lackluster performance in gold and the rise in Treasury yields.
After markets had been pricing in a 50bp cut in September with a probability of 70%, it is pricing for 41% versus 59% for a 25bp cut, according to the CME FedWatch Tool.
In today’s data, inflation slowed to 2.9% year-on-year in July versus expectations of a flat reading of 3.0%. This decline below 3% was the first since 2021. On a monthly basis, price growth accelerated again by 0.2% for both the headline and core readings, which exclude food and energy items. Food prices rose by 0.2% month-on-month and energy prices (including gasoline) remained unchanged in July, according to the Bureau of Labor Statistics.
The high level of geopolitical tensions in the Middle East keeps gold’s ability to maintain its relatively high levels, with no breakthrough in the ceasefire and de-escalation process. This comes in light of anticipation of a response from Iran and Hezbollah to Israel after the assassination of Ismail Haniyeh and Fouad Shukr.
While this week is a critical one in the course of the ongoing conflict in the Middle East and on various fronts, a new round of negotiations is scheduled to begin tomorrow in Qatar in an attempt to reach a ceasefire in Gaza. While reaching an agreement in Gaza would open the door to de-escalation in the region, according to The Wall Street Journal.
However, achieving a significant breakthrough in the negotiations may face many obstacles. Prime Minister Benjamin Netanyahu is facing pressure from the far-right coalition to prevent him from stopping the war and pushing for a “total victory” over Hamas.
While Hamas is demanding guarantees to stop the war in Gaza, which is rejected by the far-right ministers in Israel in turn, in addition to the establishment of a Palestinian state, according to The Journal. Netanyahu is also accused of undermining the efforts to reach a ceasefire, with the far-right coalition threatening to collapse the government if the war stops, according to CNN.
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