Gold prices fell over 1% on Wednesday after data showed US consumer prices rebounded as expected in July, pouring cold water on expectations of a sizeable Federal Reserve rate cut next month.
Spot gold fell about 1% to $2,443.41 per ounce by 12:50 p.m. ET, while US gold futures slipped 1.1% to $2,481.60 an ounce.
Despite this pullback, the precious metal is trading near a record high it reached last month. For the year, bullion has risen nearly 20% on mounting optimism over monetary easing by the US central bank.
However, any significant Fed rate cut in September may be out of question after new data from the US Labor Department showed higher US inflation for the month of July.
US consumer price index edged higher by 0.2% last month after falling 0.1% in June. In the 12 months through July, the CPI increased 2.9%, after advancing 3% in June, the Bureau of Labor Statistics said.
“Expectations now have shifted back in favor of just a 25 basis point cut, so that could be taking some of the momentum away from the gold market,” explained Phillip Streible, chief market strategist at Blue Line Futures, in a Reuters note.
“A September cut is a mortal lock; at the moment the data is suggesting the Fed will start with 25 bps which would be a disappointment to the market which likes to overshoot,” added Tai Wong, a New York-based independent metals trader.
Markets now see a 41% chance of a 50 basis point rate cut by the Fed in September versus that of 50% prior to the release of US CPI data, according to the CME FedWatch Tool.
Atlanta Fed President Raphael Bostic said on Tuesday he wanted to see “a little more data” before he was ready to support lowering interest rates.
Still, other factors, including central banks and safe-haven demand could continue to support gold. “We are still in an environment of significantly elevated geopolitical tensions which always benefits gold,” said Ben Hoff, head of commodity strategy at Societe Generale.
