Gold declines as expectations for rate cut fades following US CPI data; silver marginally down

Gold prices dropped in a volatile trading session on Wednesday after data revealed that U.S. consumer prices rebounded as anticipated in July. This dampened expectations for a significant rate cut by the Federal Reserve next month.

Spot gold declined by 0.4% to $2,455.91 per ounce by 1338 GMT, while U.S. gold futures fell 0.5% to $2,494.50.

“When global tensions rise, gold often emerges as a preferred investment due to its reputation as a stable and reliable asset during times of uncertainty. This is evident in the recent surge in gold prices, which have hovered near record highs as investors seek refuge from the volatility associated with geopolitical conflicts and economic instability. The ongoing tensions in the Middle East and the anticipation of possible U.S. interest rate cuts fueled further demand for gold, pushing its prices close to historical peaks. Spot gold increased slightly, reflecting the cautious optimism among investors who are closely monitoring global events and economic indicators. Gold's appeal in such times is rooted in its intrinsic value and historical role as a hedge against both inflation and currency devaluation. In this environment, gold's role as a secure store of value is reinforced, solidifying its position as a critical component of a diversified investment portfolio, especially during times of heightened global tension,” said Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions Limited(RSBL).

What's weighing on gold prices?

According to the Labor Department's Bureau of Labor Statistics, the U.S. Consumer Price Index (CPI) rose by 0.2% last month, following a 0.1% decline in June. Over the 12 months ending in July, the CPI increased by 2.9%, down from a 3% rise in June.

Following the release of the U.S. CPI data, markets now estimate a 41% chance of a 50 basis point rate cut by the Federal Reserve in September, compared to a 50% chance before the data was released, according to the CME FedWatch Tool.

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

“Gold prices are trading steady to firm and holding near their all-time highs hit in July, as the U.S. dollar and treasury yields are down amid rising expectation for an interest rate cut from the Federal Reserve on further signs of cooling inflation. Focus for the day would be the U.S. CPI data today at 6pm,” said Pranav Mer, VP - Research (Commodity & Currency) BlinkX and JM Financial.

Non-yielding gold has increased by 19% this year, reaching a record high of $2,483.60 on July 17 due to strong safe-haven demand and expectations of a Federal Reserve rate cut.

In contrast, spot silver decreased by 0.2% to $27.77, platinum fell by 0.6% to $930.25, and palladium was down 0.4% to $935.31.