Economic worries, US debt ceiling talks weigh on gold prices

Gold prices fell on Wednesday as optimism over an interest rate cut by the Federal Reserve this year faded after a US inflation report triggered profit-booking among some investors.

Spot gold was down 0.2% at $2,030.70 an ounce at 2:06 p.m. EDT (1806 GMT).

US gold futures were down 0.3% at $2,037.10.

“There’s still a risk the Fed will have to keep rates high longer … Gold needs to aggressively price further cuts to continue its rally,” said Edward Moya, senior market analyst at OANDA.

Gold gained 0.7% after the US consumer price index (CPI) rose 4.9% in April from a year ago, but was lower than expectations for a 5% rise before turning negative. Month-over-month CPI rose 0.4% in April after rising 0.1% in March.

The data disrupted modest momentum that was building for an 11th straight interest rate hike in June, with the bulk of futures linked to betting on the Fed’s rate.

But gold could struggle in the short term with core inflation unchanged from last month and above the Fed’s target, said Ole Hansen, head of commodity strategy at Saxo Bank.

While gold is considered a hedge against inflation, rising interest rates reduce the appeal of non-yielding bullion.

Some analysts have said that gold may attempt another record high given continued economic concerns, including a possible US debt ceiling default.

“The state of the banking system and fragility in the debt ceiling talks should be given more attention,” said StoneX analyst Rhona O’Connell.

Markets now await the April Producer Price Index (PPI) due on Thursday at 8:30 a.m. EDT for more signals.

Spot silver fell 1% to $25.35 an ounce, platinum rose 0.4% to $1,109.60 and palladium rose 2.1% to $1,602.7.

(This story has not been edited by News18 staff and is published from a syndicated news agency feed)