Gold falls after red-hot US inflation ignites rate hike anxiety

Bengaluru — Gold prices slipped on Thursday, with bullion's outlook hurt by the fear the US Federal Reserve could go for a more aggressive interest rate hike in July to fight skyrocketing inflation.

Spot gold fell 0.2% to $1,731.19/oz by 0312 GMT. US gold futures dropped 0.5% to $1,727.30.

The dollar steadied close to 20-year highs, hurting demand for greenback-priced gold among buyers holding other currencies.

Benchmark US 10-year treasury yields rose, weighing on appetite for zero-yield gold. Data released overnight showed US annual consumer prices jumped 9.1% in June, the sharpest spike in more than four decades.

“The CPI [consumer price index] release generated volatility but not direction,” said Ilya Spivak, a currency strategist at DailyFX, reasoning that markets now probably expected the Fed to front-load rates more, and not necessarily tighten more overall, but said gold still had a bearish outlook.

A rallying dollar sent gold prices to a near one-year low on Wednesday following the inflation report, but a retreat in the greenback helped bullion make a sharp recovery and end the session marginally higher.

Global markets also swung wildly in the previous session. The Fed is expected to ramp up its battle with sky-high inflation with a supersized 100 basis points rate hike at its upcoming policy meeting on July 26-27.

Though gold is seen as an inflation hedge, higher rates hurt the appeal of bullion, which bears no interest.

“It would be silly to say that 75 basis points is dovish, but there is a risk here that the Fed does something that's objectively big, like 75, but gold rallies because it’s not 100,” Spivak said, adding gold now has support around $1,715/oz-$1,717/oz.

Spot silver fell 0.3% to $19.11/oz, platinum slipped 0.7% to $849.00, and palladium firmed 0.2% to $1,978.20. 

Reuters