BENGALURU: Gold slid on Thursday after a larger than expected rise in February’s US producer price index (PPI) cooled expectations of early rate cuts by the Federal Reserve, boosting Treasury yields and the dollar. Spot gold was down 0.6% at $2,161.10 per ounce as of 10:03 a.m. EDT (1403 GMT), moving away from a record peak of $2,194.99 hit on March 8. US gold futures also dipped 0.7% to $2,166.60. The dollar gained 0.3% against its rivals, making gold less attractive for other currency holders, while benchmark US 10-year note yields rose to a more than one-week high.
“I expect to see continued pressure (on gold), with all of the data showing the US economy is strong, the labor market still strong,” said Chris Gaffney, president of world markets at EverBank.
“It really makes investors question just how quickly the Fed’s going to decide to start cutting (rates).”
US producer prices increased more than expected in February amid a surge in the cost of goods like gasoline and food, which could fan fears that inflation is picking up again.
Higher inflation adds pressure on the Fed to keep interest rates elevated, weighing on non-yielding assets such as gold. However, traders continue to bet on interest rate cuts in June, pricing in about a 64% chance compared to 72% before the CPI data earlier this week, according to the CME Group’s FedWatch Tool. The Fed is expected to hold rates steady at its policy meeting next week, but the focus will be on the “dot plot” projections. “Gold is an uncertainty hedge, an inflation hedge with higher inflation and more uncertainty.
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