Gold softened on Friday after the latest set of US inflation data matched expectations, but still kept above the $2,500 level with a September interest rate cut by the Federal Reserve likely around the corner.
Spot gold was down 0.6% at $2,506.59 per ounce as of 11:20 a.m. ET, while US gold futures fell 0.9% to $2,538.30 an ounce in New York.
Despite the pullback, bullion is on track for a 3% gain this month after prices rallied to an all-time high of $2,531.60 just over a week ago.
Data earlier in the day from the Commerce Department showed the personal consumption expenditures (PCE) price index rose 0.2% last month, matching economists’ forecasts.
“The PCE data confirms inflation is no longer the Fed’s main concern, as they have shifted their focus to unemployment, which further validates the potential rate cuts in September,” said Alex Ebkarian, chief operating officer at Allegiance Gold, in a Reuters note.
“Next week is going to be a lot more volatile as we are looking at more of the unemployment numbers,” Ebkarian added.
Traders slightly raised bets of a 25-basis-point rate reduction by the Fed next month to 69%, with a 50-bps cut possibility coming down to 31% following the inflation report, according to the CME FedWatch tool.
On the physical front, gold discounts in India widened this week to their highest in six weeks as a price rebound dampened purchases, while new import quotas failed to lift Chinese demand.
“Systematic trend followers are effectively max-long. We also think that Shanghai positioning is near its record highs. That is despite the fact that physical demand in China has been fairly weak and inflows from Chinese gold ETFs as well,” said Daniel Ghali, commodity strategist at TD Securities.
“So overall, we think the first cohort to blink could actually create a snowball effect of subsequent selling activity.”
