Gold climbs above US$4,000 as inflation print curbs rate-hike bets

[LONDON] Gold extended gains above US$4,000 an ounce on Friday (Jun 26) after the latest US inflation print tempered expectations for an interest-rate hike, capping a tumultuous week that saw bullion slump to the lowest price since November.

Spot gold rose as much as 1.7 per cent on Friday, adding to a gain in the previous session. Still, the precious metal remains on track for a fourth straight weekly decline – the longest losing streak since August 2023. The metal has faced headwinds from a stronger US dollar and heightened expectations that the Federal Reserve will pursue a more hawkish approach to keep inflation in check. Higher interest rates tend to reduce the appeal of non-yield bearing bullion.

Gold rebounded from earlier losses on Friday as tech stocks plunged on concerns about the artificial intelligence trade, with volatile moves in stock markets this week prompting some investors to sell gold to cover losses elsewhere in their portfolios.

Still, bullion has found some support from US inflation data that, while high, was within analyst estimates. Treasury yields dipped after the US personal consumption expenditures price index, the Fed’s favoured inflation gauge, rose 0.4 per cent in May. US consumer sentiment also rose in June as lower petrol prices provided some relief for Americans grappling with high inflation.

Gold’s descent this week through the US$4,000-an-ounce threshold marks a sharp reversal of the multiyear bull run that carried the metal to successive record highs.

Last year was bullion’s best in four decades, with strong support from the so-called debasement trade, whereby investors prefer alternative assets like gold and Bitcoin due to mounting fiscal debt burdens in developed economies. That trade has since unraveled, which has prompted some major Chinese banks this week to shut down services that aid retail trading.

“When crowded growth trades come under pressure, investors often sell what they can, not just what they want to,” said Charu Chanana, chief investment strategist at Saxo Markets. “Gold has been a big winning trade for much of the past year, so it can become a source of cash when portfolios need to de-risk,” she said.

Meanwhile, a gauge of the US dollar was on track for a second weekly gain. The US currency has gained around three quarters of a percentage point since the latest Fed meeting last week, where policymakers signalled support for higher borrowing costs and new chair Kevin Warsh said repeatedly that “price stability” would be his priority. A stronger greenback makes commodities priced in the US dollar more expensive for most buyers.

After Thursday’s inflation report, bond traders are pricing in slightly lower prospects for a rate hike this year, while the chance of an increase next month dwindled to about one-in-three. But the trend towards tighter monetary policy continues to be an obstacle for metals that don’t pay interest, making them a less attractive investment than yield-bearing assets like Treasuries.

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Gold steadies near US$4,000 as inflation data eases rate-hike bets

“Gold has pretty much priced in the risk of further Fed tightening, but it has not absorbed a sustained ‘higher-for-longer’ real yield regime,” said David Chao, market strategist at Invesco.

Spot gold rose 1.6 per cent to US$4,089.80 an ounce at 4.58 pm in New York. Silver climbed 2.2 per cent to US$59.15 an ounce, while platinum and palladium also gained. BLOOMBERG