· Gold prices slumped 1% on Thursday, erasing gains posted earlier in the session after stronger-than-expected consumer inflation in the United States cast doubts whether the U.S. central bank will cut interest rates as aggressively as expected.
· Spot gold shed 1% to $1,404.40 per ounce as of 1:30 p.m. EDT (1730 GMT), dropping nearly $15 after U.S. consumer prices demonstrated a pick-up in underlying inflation, increasing in June by the most in nearly 1-1/2 years.
U.S. gold futures settled 0.4% lower to $1,406.70 per ounce.
Gold prices had touched a one-week high of $1,426 earlier in the session.
· Gold slipped as the dollar pared losses and yields on U.S. Treasuries surged, damping the appeal of the metal because it doesn’t pay interest.
Yields on 10-year Treasuries reached a one-month high after a key measure of U.S. consumer prices rose more than forecast in June. The price report could complicate the Federal Reserve’s assessment of inflation as policy makers weigh an interest-rate cut as soon as this month.
Gold “is sort of caught between cross-currents,” Ed Meir, an analyst at INTL FCStone Inc., said by phone. “The bearish influence is the fact that the dollar has come back from being weaker today to unchanged and also the fact that rates are going up in response to the higher inflation numbers we got. So higher rates, stronger dollar is bearish for gold.”
· The Federal Reserve last month downgraded its U.S. inflation projection for 2019 to 1.5% from the 1.8% projected in March.
However, this may probably not change expectations the U.S. central bank will cut interest rates this month.
· Exchange-traded funds backed by the precious metal have been rising, with holdings reaching 2,311.3 metric tons as of Wednesday, the most since 2013.
The sell-off in gold could be short-lived with central banks signaling a dovish stance, analysts said. Even with stronger-than-expected U.S. inflation data Thursday, traders are still pricing in a July rate cut by the Fed as a certainty.
· The price data was “probably not enough to change the mindset of the Fed given how long inflation has been quiescent,” Tai Wong, head of base and precious metals derivatives trading at BMO Capital Markets, said an email. “It will take more than one stronger print in inflation to even register for Fed policy makers.”
· “We saw today’s inflation data - the markets started to back off today because it challenges the need for additional rate cuts,” said Chris Gaffney, president of world markets at TIAA Bank, calling bullion’s decline a kneejerk reaction.
Thursday’s move “is just an adjustment of the fact that maybe it had gone up a little fast yesterday, but is still holding nicely above $1,400, and it looks like we going to continue holding above $1,400,” he added.
· Gold in June rallied to a six-year peak of $1,438.63 an ounce, largely on the back of expectations of rate cuts by key central banks amid concerns over the global economy.
· “A break above $1,438 may lead to further buying orders with $1,500 being the next level traders looking to target,” Hussein Sayed, chief market strategist at FXTM, wrote in a research note.
· Among other precious metals, palladium erased gains and dipped 1.7% to $1,561.86 per ounce, having earlier hit a high of $1,605.52.
Silver was down 0.9% to $15.10, while spot platinum dipped 0.8% to $818.
Reference: Reuters, Bloomberg
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