Gold trims losses following weaker than expected inflation data; silver down 1.5%

Gold prices pared some of their losses on Thursday following weaker-than-expected U.S. producer inflation data, which raised hopes for two interest rate cuts in 2024, despite the Federal Reserve projecting only one cut this year.

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.

Also read: Gold rate today: Why is gold price nosediving today after US Fed meeting?

U.S. producer prices unexpectedly declined in May due to lower energy costs, suggesting that inflation had eased 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 rest of the year due to sticky inflation – that has helped dollar recover from early dip yesterday and weighed on commodities,” said Gold and Crude Oil by Pranav Mer, VP – Research (Commodity & Currency) BlinkX and JM Financial.

What’s weighing on gold prices?

Benchmark U.S. 10-year Treasury yields fell to their lowest levels since April 1, enhancing the appeal of non-yielding bullion. Money market pricing showed that traders increased their bets, now pricing in about 50 basis points of Fed policy easing, equivalent to two-quarter percentage cuts by the end of the year, up from 40 basis points before the PPI data release.

On Wednesday, the Federal Reserve held interest rates steady and projected only one rate cut in 2024, despite some progress in inflation, as growth and unemployment remained at levels the Fed considers unsustainable in the long term.

Also read: Oil at 1-week high as OPEC maintains 2024 demand forecast ahead of US Fed policy; Brent over $82/bbl

A slowdown in inflation was also observed in Wednesday’s consumer price index data, which was surprisingly flat for May. This initially boosted gold prices by as much as 1 per cent, though it later pared gains to close about 0.3 per cent higher following the Fed’s hawkish press conference on the same day.

In other markets, 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.