Gold Prices Rise as Dollar Weakens

Gold futures saw a slight increase on Monday, benefiting from a weakening U.S. dollar and anticipation surrounding the upcoming release of the consumer-price index for August.

Price Action

• Gold for December delivery (GC00, +0.29% GCZ23, +0.29%) rose by $6.30 or 0.3%, reaching $1,949 per ounce on Comex. This follows a 1.2% decrease last week.
• December silver (SIZ23, +0.85%) also saw a boost, with a rise of 21.1 cents or 0.9%, bringing it to $23.385 per ounce. Silver experienced a 5.7% drop last week.

Market Drivers

Gold has faced challenges in gaining momentum since early August due to the increase in Treasury yields and strengthening of the U.S. dollar. Higher bond yields raise the cost of holding nonyielding assets like gold, while a stronger dollar makes commodities priced in dollars more expensive for foreign buyers.

However, the U.S. dollar's bounce took a break on Monday as the Japanese yen (USDJPY, -0.74%) surged following comments made by Bank of Japan Gov. Kazuo Ueda, who hinted at a possible end to the country's long-running negative interest rate policy.

The Dollar Index Drops as Inflation Data Awaited

The ICE U.S. Dollar Index (DXY), which measures the currency against a basket of six major rivals, experienced a decrease of 0.3%. As a result, its month-to-date gain was reduced to 1.1%. Market participants are closely observing the release of the August consumer price index to gain insights into the rate path of the Federal Reserve. The dollar, along with Treasury yields, has been boosted by expectations of the Fed's need to maintain higher interest rates for a longer duration, driven by consistently strong economic data.

Inflation Data as a Key Indicator

Traders and investors are eagerly awaiting the latest U.S. inflation data, as it will serve as a crucial data point to assess the possibility of the Federal Reserve keeping interest rates unchanged at their upcoming meeting. This is especially significant if the inflation numbers indicate a closer alignment with the bank's target of 2%. Rupert Rowling, a market analyst at Kinesis Money, commented on the matter.

Impact on Gold's Appeal

Rowling also highlighted that even though U.S. interest rates may not increase further, they are likely to remain elevated for an extended period. This could diminish the attractiveness of gold, given its lack of yield as a physical asset. As a result, he advised investors to enjoy the current high price of gold, which sits at over $1,900 per ounce, but cautioned that the future could bring increasing challenges.