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Gold 'Risks Testing $2000' on Hot US Inflation Data as S&P500 'Echoes Dot Com Bubble'

GOLD PRICES snapped out of a tight range on Monday, dipping to 1-week lows in London's bullion market ahead of this week's key US inflation and retail sales data as China's bullion and financial markets stayed closed for the Lunar New Year holidays while New York's S&P500 index of US corporate stocks was set to open unchanged from last weekend's fresh record high, writes Atsuko Whitehouse at BullionVault.
Due out Tuesday, the US consumer price index for January is expected to show core inflation – which excludes volatile food and energy prices – slowing from 3.9% to 3.7% per year.
If not, "A hot CPI print will really pressure test the non-stop-can't-stop equities rally," said a note overnight from Nicky Shiels, head of metals strategy at Swiss bullion refining and finance group MKS Pamp, pointing to the likely impact on already-weakened expectations for the US Federal Reserve to start cutting Dollar interest rates from today's 2-decade high of 5.50% this spring.
With China's bid for wholesale bullion now missing for this week's holidays, hot inflation data could also "push gold to test $2000 [with] another blow to the ever fragile white metals," Shiels says.
Gold prices in US Dollar terms this morning moved less than $3 per Troy ounce either side of Friday's finish at $2023.50 in London's bullion market, before dipping to $2018 at the start of US trade.
The 'white metals' of silver, platinum and palladium also fell back but only after the PGMs had recovered almost half of last week's steep drop while the price of silver – which finds nearly 60% of its annual demand from industrial uses – rose over 1.5% to peak above $23 per Troy ounce for the first time in 6 sessions.
Chart of gold priced in US Dollars vs. S&P500 index. Source: BullionVault
Despite interest-rate traders slashing the odds of the Fed's first rate cut coming in March from 4-in-5 to just 1-in-5 over the last month, the S&P500 closed Friday above the 5,000 level for the first time ever, adding 1.4% for the week and 5.4% so far in 2024. 
The S&P has now risen by more than 1/5th from October 2023's low, adding 125% since the Covid Crash of March 2020.
Gold prices have risen by 33% during that near 3-year period.
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"The US equity market is increasingly drawing similarities with the dot-com bubble," says US finance giant Bank of America's strategist Michael Hartnett, comparing the tech bull run to the late 1990s' tech stock mania.
During the DotCom bubble from 1995 to March 2000, the Nasdaq composite index rose 8-fold, only to fall 78% from its peak by October 2002. Gold priced in the US Dollar in contrast rose 11% during that 19-month period.
Now the so-called 'Magnificent Seven' tech stocks of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – after driving the US stock market higher in 2023 – accounted for 45% of the S&P 500's return in January, says Hartnett. 
"Just as a very limited number of stocks were responsible for the majority of gains," warns analysis from US finance group J.P.Morgan, "drawdowns in the top 10 [stocks] could pull equity markets down with them."
Among the white metals, the price of platinum today rallied 0.9% to $888 per Troy ounce, trimming platinum's record discount to gold prices after setting a new all-time gap since London's benchmark prices were established in March 1990.  
The price of palladium meanwhile rose 2.8% to breach $900 after plunging by almost 1/10th last week on growing concerns over weak PGM demand versus supply. 
Gold priced in both Euros and the UK Pounds meantime steadied around Friday's close at €1887 and £1602 per Troy ounce respectively.
Besides US inflation, retail sales and also Japanese and European industrial production data, this week brings a raft of speeches from voting members of the US Fed's FOMC, including Michelle Bowman and Thomas Barkin on Monday, plus non-voting member Neel Kashkari.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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