Tuesday, June 4, 2024
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Gold Price Declines as US Inflation Data Supports Fed Caution

Gold’s remarkable nine-day streak of record-breaking gains came to an end as the underlying US inflation exceeded expectations for the second consecutive month in February, reinforcing the Federal Reserve’s cautious stance on interest rate cuts.

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Spot bullion experienced significant fluctuations as traders absorbed the data, ultimately trading down 1% at $2,161.14 per ounce as of 9:54 a.m. in New York, following its all-time high of $2,195.15 reached on Friday.

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Bart Melek, global head of commodity strategy at TD Securities, commented, “The February CPI came in hotter than expected. The implication is that the Fed may not be ready to cut rates just yet.”

The Fed’s anticipated shift towards looser monetary policy has been expected to enhance gold’s appeal compared to yield-bearing assets like bonds. However, policymakers have emphasized the need for further evidence that inflation is trending towards its 2% target before considering rate cuts.

Swap markets now indicate a 63% probability of a rate reduction in June, slightly higher than the 61.8% recorded the day before the February CPI readings.

“Mild inflation remains supportive as the market anticipates the Fed will still proceed with a cut in June, as this reading is not deemed detrimental enough to alter that expectation,” noted Nicky Shiels, head of metals strategy at Geneva-based MKS PAMP SA.

While gold has surged notably this month, establishing multiple record highs, the sudden and substantial rally has puzzled many seasoned market observers, lacking a clear rationale for its rapid ascent.

Nevertheless, gold has found support from longstanding factors, including substantial purchases by central banks in emerging markets, notably led by China. Additionally, heightened geopolitical tensions, from the Middle East to Ukraine, have underscored gold’s appeal as a safe-haven asset.

Following the CPI data, copper and most other base metals also experienced declines. Copper, for instance, was down 0.3% at $8,628 a ton on the London Metal Exchange as of 1:55 p.m. local time.

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