Gold prices trimmed some of their losses on Thursday following weaker-than-expected U.S. producer inflation data, sparking hopes for potential interest rate cuts in 2024. Despite the Federal Reserve projecting only one cut this year, market sentiment remained optimistic.
As of 1318 GMT, spot gold was down 0.2 per cent at $2,318.47 per ounce, having dropped to a low of $2,303.84 before the data release. U.S. gold futures were down 0.9 per cent trading at $2,333.70.
U.S. producer prices unexpectedly declined in May due to lower energy costs, indicating a potential easing of inflation after a surge in the first quarter.
“Gold prices are down more than 0.5 per cent as the U.S. Fed trimmed its rate cut outlook for the current year to just one cut of 25bps, while some officials were of the view to keep rates steady for the rest of the year due to sticky inflation – that has helped the dollar recover from an early dip yesterday and weighed on commodities,” said Gold and Crude Oil by Pranav Mer, VP – Research (Commodity & Currency) BlinkX and JM Financial.
Factors Influencing Gold Prices
Benchmark U.S. 10-year Treasury yields fell to their lowest levels since April 1, boosting the appeal of non-yielding bullion. Market indicators suggested an increased likelihood of Fed policy easing, with traders now pricing in about 50 basis points of cuts by the end of the year, up from 40 basis points before the PPI data release.
On Wednesday, the Federal Reserve maintained interest rates and only projected a single rate cut in 2024, despite some progress in inflation. The decision was based on concerns about long-term sustainability of growth and unemployment levels.
A slowdown in inflation was also evident in Wednesday’s consumer price index data, initially lifting gold prices by up to 1 per cent. However, gains were later pared following a relatively hawkish press conference by the Fed on the same day.
In the wider market context, spot silver dropped 1.5 per cent to $29.27 per ounce, platinum decreased by 0.7 per cent to $956.80, and palladium declined by 0.7 per cent to $900.10.
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Published: 13 Jun 2024, 10:12 PM IST
Insight:
The dynamics impacting gold prices are multifaceted, with market expectations of interest rate cuts and inflation trends heavily influencing investor sentiment. The interplay between economic data releases and central bank decisions creates a volatile environment for precious metals and commodities, underscoring the importance of staying abreast of evolving market conditions. Industrial metals like silver, platinum, and palladium also experience fluctuations based on global economic factors, emphasizing the interconnected nature of financial markets.
