Gold stayed below $1,700 an ounce as worse-than-expected inflation data out of the US this week increased expectations of a prolonged period of interest rate rises.
(Bloomberg) — Gold stayed below $1,700 an ounce as worse-than-expected inflation data out of the US this week increased expectations of a prolonged period of interest rate rises.
Bullion fell 0.3% on Wednesday following the US government’s inflation figures report, while a measure for US producer prices also concerned market watchers. After a sharp spike on Tuesday, the dollar dipped in the next session.
Investors are now fully pricing in a 75 basis point rate hike when the Federal Reserve board meets next week. Some are even predicting a full percentage point increase, although that prospect was downplayed by JPMorgan Chase & Co. chief US economist Michael Feroli. Retail sales due Thursday and University of Michigan readings Friday will be parsed for further clues on the strength of the economy and inflation expectations.
European Central Bank Governing Council member Robert Holzmann warned inflation was “likely to accelerate even more,” which could result in robust monetary-policy tightening there. Higher rates tend to weigh on non-interest bearing bullion.
“The yellow metal fell below $1,700 on growing optimism over a larger rate hike from the US Fed,” said Tapan Patel, senior research analyst at HDFC Securities. The stronger dollar index also weighed on gold, with support seen around $1,676 an ounce, he said.
Meanwhile, in China growth has slowed so sharply that several major banks don’t even think a 3% expansion is achievable this year. That could impact gold jewelry demand in the world’s biggest consumer of the precious metal.
Spot gold fell 0.4% to $1,690.01 at 5:45 a.m. in London. The Bloomberg Dollar Spot Index was little changed. Silver, palladium and platinum also declined.
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