Gold loses ground but rate cut bets put floor under prices

Bengaluru — Gold prices edged lower on Friday, but were headed for a third consecutive week of gains as cooler-than-expected US inflation data boosted the hope of the Federal Reserve cutting interest rates in September.

Spot gold slipped 0.2% at $2,409.19/oz by 4.21am GMT after rising 2% on Thursday. US gold futures eased 0.3% at $2,414.10.

Data on Thursday showed US consumer prices unexpectedly fell and the annual increase was the smallest in a year, drawing the Fed another step closer to cutting interest rates.

“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,” said Tim Waterer, KCM Trade chief market analyst.

Bets of a September rate cut rose to 93% compared to a 70% chance before the data was released, according to the CME FedWatch Tool.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

San Francisco Fed Bank president Mary Daly on Thursday said that she expected further easing in both price pressures and the labour market to warrant interest rate cuts, while Chicago Fed Bank president Austan Goolsbee said the US economy looked like it was back on track to 2% inflation.

Investors now await the US producer price index (PPI) reading due at 12.30am GMT.

“The PPI figures could be key in determining which side of the $2,400 level gold ends the week at,” Waterer said.

Spot silver fell 0.8% to $31.18/oz, after scaling a more than one month high on Thursday.

Platinum edged 0.1% lower at $1,003.25 and palladium dropped 1.3% to $982.44. Both metals were set to register weekly declines.

Key metals consumer China’s exports rose 8.6% in June from a year earlier, and imports unexpectedly shrank 2.3%, data showed.

Reuters