Gold prices fell on Wednesday as strong inflation data raised fears that the Federal Reserve may keep interest rates high for longer. Later in the day, gold recovered some losses but still stayed under pressure overall. At 09:02 ET (13:02 GMT), spot gold was down 2.5% at $4,152.81 per ounce, as per several reports.
US inflation impact gold
Gold futures also fell 2.5% and were trading at $4,179.05 per ounce. The U.S. Consumer Price Index (CPI) showed prices rose 0.5% month-on-month in May, matching market expectations.
On a yearly basis, stood at 4.2%, matching what experts had anticipated. After the inflation data was released, U.S. Treasury yields fell slightly and the U.S. dollar also became weaker. When the dollar is strong, gold becomes more expensive for buyers in other countries, which can reduce demand. This often leads to lower gold prices.
Fed rate hike fears rise
On Tuesday, gold had already fallen more than 1% to a two-month low, as markets sold off and traders expected possible U.S. interest rate hikes this year. Spot gold dropped 1.5% to $4,264.70 per ounce and had touched its lowest level since March 23 before slightly recovering. U.S. gold futures for August also fell 1.8% to $4,286.4 per ounce during the session.
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Many markets moved into ‘risk-off’ mode, says experts
Market expert Bob Haberkorn said traders were nervous and many markets moved into “risk-off” mode, which pulled gold prices down, as reported by Reuters. He also said gold and silver will likely stay under pressure until the U.S. Federal Reserve gives clearer signals on interest rates.
Investors are now focused on upcoming inflation reports like CPI and Producer Price Index (PPI) for more clues on future Fed decisions. Commerzbank said if inflation comes in higher than expected, gold could fall further, but prices may recover later if the Fed does not raise , as reported by Reuters.
Traders are currently pricing in about a 68% chance of a Federal Reserve rate hike in December, based on CME FedWatch data. Oil prices also fell after Iran and Israel said they had stopped attacks following an appeal from U.S. President Donald Trump, which reduced geopolitical tension. Lower oil prices can reduce inflation pressure, but higher energy costs earlier can still keep interest rates high, which is negative for gold, as per Reuters report.
