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Gold Subdued, US Inflation Data Disappoints

Gold is almost unchanged in the Tuesday session. In North American trade, the spot price for one ounce of gold is $1291.18, down 0.02% on the day. In economic news, inflation indicators missed their estimates. PPI declined by 0.2%, missing the forecast of -0.1%. This was the weakest reading since July 2016. Core PPI dropped by 0.1%, shy of the estimate of 0.2%. There was no relief from the manufacturing sector, as the Empire State Manufacturing Index plunged to 3.9 points, down from 10.9 points a month earlier, and short of the estimate of 11.6 points.

After an aggressive 2018, the Federal Reserve is expected to ease up on rate policy this year. However, it’s not at all clear what to expect from the Fed in 2019. There is a large discrepancy between Fed forecasts and market expectations, which could result in volatility in the currency markets. The most recent projections from individual policymakers in the Federal Open Market Committee (FOMC) stands at two rate hikes this year, but the markets are expecting the Fed to hold pat and not raise rates in 2019. Moreover, the markets have priced in a rate cut before the end of the year at 28 percent. On Monday, former Fed Chair Janet Yellen said that she expected the Fed to take a breather, saying that it’s ‘very possible’ that the Fed has made its last hike of this cycle.

Risk appetite has improved in January, but a weaker Chinese economy could spook investors. On Monday, China released unexpectedly soft data, with exports down 4.4 percent from a year earlier and imports plunging 7.6 percent. The slowdown in China has taken a toll on corporate profits, with Apple and Jaguar Land Rover posting revenue warnings. Further signs of a slowdown from the world’s second largest economy could raise risk apprehension and bolster safe-haven gold.

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