12.07.202313:57 Forex Analysis & Reviews: Where will gold end up on today's CPI news?

Recently, the relationship between gold prices and inflation reports has become more complex, despite the fact that the traditional cause-and-effect relationship between inflation and gold prices has always had a certain character. Under current economic conditions, the cause-and-effect relationship may prove to be invalid.

Gold has always been considered a safe-haven asset and a hedge against inflation. This has historically led to an increase in the prices of the precious metal during periods of inflation. Conversely, when reports pointed to lower inflation, gold historically depreciated.

However, the aggressive monetary policy of the Federal Reserve System, which includes raising interest rates to combat inflation, now rigidly controls the price of gold. Therefore, if the forthcoming Consumer Price Index (CPI) report, which will be published today, shows an expected decline in inflation, this will trigger bullish sentiment in the gold market. In this scenario, a decrease in inflation will relieve the pressure on the Federal Reserve to raise rates more aggressively.

The current forecast suggests that today's report will show the lowest level of inflation in the United States in the last two years. Naturally, this is a consequence of the aggressive monetary policy of the Federal Reserve System. As 10 out of the last 11 meetings of the Federal Open Market Committee (FOMC) led to rate increases.

In anticipation of today's report, there is an increase in gold prices, accompanied by a decrease in yield and the value of the dollar.

If the inflation report turns out to be soft, it will be positive for the precious metal. And it may create a momentum for the movement of gold prices to the level of $1,955.

Wall Street forecasts suggest that the overall Consumer Price Index will be at 0.3%, which is a faster pace of growth than in May at 0.1%. Partly thanks to higher gas prices with a primary decrease from 0.4% to 0.3%.