Gold Fluctuates, Fed's Direction Determined
Gold prices fluctuated on Wednesday (July 15th) as market participants weighed the Fed's interest rate direction after lower-than-expected US producer inflation data.
Gold briefly fluctuated between positive and negative territory with a range of less than 1%. Pressure on the US dollar and Treasury yields eased after the Producer Price Index (PPI) data showed inflationary pressures were softening, primarily due to falling energy costs last month.
The more benign PPI data gave the Fed room to delay an interest rate hike in the near term. This sentiment was reinforced by the US CPI data the day before, which was also lower than expected. For gold, expectations of lower interest rates are usually a positive catalyst because gold does not provide a yield.
Despite this, gold prices have tended to remain stuck around the US$4,000 per troy ounce area in recent weeks. Previously, gold fell 14% in the second quarter, its worst performance since 2013, as expectations of Fed tightening boosted the dollar and Treasury yields.
The probability of a Fed rate hike in July has now dropped to around 10%, significantly lower than nearly 50% the day before. However, the market remains cautious as Fed Chairman Kevin Warsh emphasized that the mission to combat inflation is not yet complete.
The biggest risk still comes from the Middle East. Oil prices rose for a third day after the US military launched another airstrike against Iran, while Trump vowed to escalate the strikes until Tehran stops attacking ships in the Strait of Hormuz. As a result, gold received support from benign inflation data, but its gains could be restrained if energy conflicts again trigger inflation risks and keep the Fed hawkish.
Source: Newsmaker.id
