Gold prices dipped slightly on Friday but remained on track for a third consecutive weekly rise. This positive momentum follows cooler-than-expected U.S. inflation data, which has fueled hopes that the Federal Reserve may begin cutting interest rates as early as September.
As of 0148 GMT, spot gold fell by 0.2% to $2,408.70 per ounce, after experiencing a notable 2% increase on Thursday. Similarly, U.S. gold futures eased by 0.3% to $2,413.90 per ounce.
Inflation Data Sparks Optimism
Thursday’s data revealed an unexpected drop in U.S. consumer prices, marking the smallest annual increase in a year. This development has brought the Federal Reserve closer to potentially reducing interest rates. Tim Waterer, KCM Trade’s chief market analyst, commented, “Inflation outlook and interest rate picture have moved in favour of gold this week. As we move closer to a lower interest rate environment, conditions could be ripe for gold to set new record highs before the year is out.”
Fed Rate-Cut Bets Increase
The CME FedWatch Tool indicates that the probability of a U.S. rate cut in September has surged to 93%, up from 70% prior to the inflation data release. Lower interest rates generally reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors.
Insights from Fed Officials
San Francisco Fed Bank President Mary Daly mentioned on Thursday that she anticipates further easing in both price pressures and the labor market, which could justify interest rate cuts. Chicago Fed Bank President Austan Goolsbee also expressed optimism, stating that the U.S. economy appears to be on track to achieve 2% inflation.
Market Anticipates PPI Data
Investors are now eagerly awaiting the U.S. producer price index (PPI) reading, scheduled for release at 1230 GMT. Waterer noted, “The PPI figures could be key in determining which side of the $2,400 level gold ends the week at.”
Other Precious Metals
In the broader precious metals market, spot silver slipped by 0.8% to $31.20 per ounce, after reaching a more than one-month high on Thursday. Platinum declined by 0.2% to $1,001.90, while palladium dropped 1% to $984.63. Both platinum and palladium are poised to record weekly declines.
As the market digests the latest economic data and Fed commentary, gold remains in a favorable position, with potential for new highs if the rate-cut expectations materialize. Investors will be closely monitoring upcoming data and Fed decisions for further direction.