The price of gold fell by 1.1% after Friday's rally (+1.48%), caused by increased expectations of easing the Fed's monetary policy this year. The price drop was caused by partial profit-taking and position correction ahead of the release of US inflation data.
Recent softer-than-expected U.S. labor market data and a Fed that ruled out further interest rate rises saw traders price in more easing from the Fed this year. Comments by Fed officials last week varied, while a jump in consumers' inflation expectations, revealed in a survey on Friday, could further complicate the conversation. Later this week, investors will focus on a new batch of inflation data - a report on producer prices for April will be released on Tuesday, and the consumer price index for April will be published on Wednesday. Traders will watch for signs that inflation has resumed its downward trend towards the Fed's 2% target rate. CPI is projected to rise in April by 0.3% m/m after an increase of 0.4% in March. Meanwhile, core inflation - excluding food and energy - probably rose by 0.3% over the month and 3.6% per annum, which is a three-year low. So crucial is the data that rounding to the second decimal place could make all the difference. A low number would likely boost bets the Fed could ease as soon as July. Equally, a high inflation print could push a rate cut out past September. Markets are pricing in around a 61% chance of a rate cut by the Fed's September meeting, with about 40 basis points of cuts in total expected in 2024, according to the CME FedWatch Tool. Lower interest rates reduce the opportunity cost of holding gold.