Gold has ticked higher in the Wednesday session. In North American trade, the spot price for an ounce of gold is $1246.42, up 0.16% on the day. On the release front, inflation numbers were a mix. CPI improved to 0.4%, matching the forecast. However, Core CPI, which excludes volatile items such as food and energy prices, edged lower to 0.1%, missing the estimate of 0.2%. Later in the day, the Federal Reserve is expected to raise rates to a range between 1.25% to 1.50%. On Thursday, the US releases retail sales reports and unemployment claims.
The Federal Reserve is in the spotlight, as policymakers meet for a monthly policy meeting later on Wednesday. Traders should be prepared for a possible drop in gold prices if rates move higher, as gold moves inversely to interest rate movements. The Fed is pleased with the strength of the US economy, but remains puzzled why strong growth and a red-hot labor market has not led to higher inflation. The labor market continues to operate at full capacity and various sectors in the economy are reporting a lack of workers. Still, this has not translated into stronger wage growth, despite predictions from Janet Yellen and other Fed policymakers that a lack of workers is bound to push up wages. On Friday, Average Hourly Earnings, which measures wage growth, came in at 0.2%, shy of the estimate of 0.3%. Whether inflation moves higher or remains depressed could have a significant effect on monetary policy – if wage growth and inflation shows improvement in 2018, the Fed could raise interest rates up to three times in 2018. After Wednesday’s rate announcement, the markets will be looking ahead to the January policy meeting, with the odds of a quarter-point hike standing at 86 percent.
