Oil and Gold Gain Traction as Commodity Traders Gauge Data Numbers

In the past fortnight, the U.S Dollar Index showed erratic movements, swinging between ups and downs as investors anticipated hints of U.S. inflation easing. Such a trend might suggest a sooner-than-expected rate reduction by the Federal Reserve. However, U.S. inflation rates exceeded forecasts, resulting in an immediate boost in both the dollar and U.S. 10-year treasury yields, climbing over 102.7 and 4 per cent, respectively. Over a year, US CPI and Core CPI climbed by 3.4 per cent and 3.9 per cent, surpassing predictions of 3.2 per cent and 3.8 per cent. [EasyDNNnews:PaidContentStart]

Despite these high inflation numbers, expectations for a rate cut largely remained stable, leading the dollar to fall back under 102.2 after initially rising. Following the announcement of U.S inflation data, COMEX Gold prices made a strong comeback from a low of USD 2017 per troy ounce. Despite initial fluctuations, gold prices stabilized by week's end, influenced by a lower-than-expected US producer inflation report, fuelling speculation of the Fed's earlier monetary easing. 

In a surprising turn, U.S. producer prices fell by 0.1 per cent month-over-month in December 2023, defying the expected 0.1 per cent increase. The annual rise of 1 per cent was less than the predicted 1.3 per cent, conflicting with the earlier strong CPI data and raising hopes for a gradual decline in inflation towards the Federal Reserve's target. 

WTI Crude oil saw a notable recovery, rising from USD 70.13 to USD 75.25 a barrel, and settling about 1 per cent higher at nearly USD 72.68 a barrel. Military strikes against Houthi targets in Yemen, following attacks on ships in the Red Sea, reintroduced concerns about war risks. Fears of a wider conflict in the Middle East, possibly involving Iran, raised concerns over disruptions in a region crucial for a third of the world's crude production. Crude oil prices are expected to remain elevated amidst concerns of supply disruptions and the need for shipping reroutes, especially following Saudi Arabia's warnings about escalating tensions due to actions by the U.S. and its allies. 

"Commodity markets around the world saw shifts in risk attitudes, keeping a close eye on inflation updates from the U.S. and China amidst rising geopolitical unrest in the Middle East. "

In the first week of January, base metals on the LME experienced one-month lows, driven by worries about global manufacturing and construction activities and uncertainties about the Fed's interest rate decisions. The World Bank's forecast of a third consecutive year of global economic slowdown in 2024, along with China's expected economic growth deceleration to 4.5 per cent, further increased market concerns. This slowdown is linked to challenges in China's property sector and a decline in consumer prices, indicating a reluctance to spend. 

Looking forward, market focus is set to shift to upcoming U.S. retail sales figures and speeches by Federal Open Market Committee (FOMC) officials, as the interest rate direction remains unclear after the latest U.S. data. 

Additionally, China's third consecutive monthly drop in CPI in December has raised expectations of the People's Bank of China cutting rates on its one-year policy loans, potentially for the first time since August. Speculation is also growing about a possible decrease in banks' required reserve ratios. Signs of deflation point to weak domestic demand, increasing calls for stimulus, particularly with significant GDP and other data releases from China approaching. 

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