Gold holds gain as soft US inflation data reduces rate hike bets

[SINGAPORE] Gold steadied after monthly US inflation came in lower than expected, relieving some pressure on the Federal Reserve to hike interest rates.

Bullion was near US$4,050 an ounce, after rising 1.3 per cent in the previous session. Consumer prices in the US declined in June for the first time in six years, prompting a rally in the bond market as traders unwound bets on a rate hike as soon as this month.

A key gauge of underlying inflation was little changed, according to Bureau of Labor Statistics data released Tuesday (Jul 14).

The biggest drop in petrol prices since 2022 offered US consumers some relief as the worst of the Iran war energy shock started to fade.

But a recent flare-up in fighting – accompanied by a new upturn in crude prices – risks prolonging the inflationary fallout from the conflict.

That in turn raises the likelihood that central banks may ultimately keep interest rates higher for longer, creating headwinds for non-yielding precious metals.

While Fed chairman Kevin Warsh stopped short of signalling tighter monetary policy during three hours of Congressional testimony on Tuesday, he made it clear that rates were among the options at his disposal to keep inflation within a promised 2 per cent target.

“We have the tools to do it,” Warsh said.“Over the coming period, I’m going to ask our colleagues to have a good family fight about the extent and timing in which we would need to deploy those.”

Gold has edged higher this month after losing 14 per cent in the second quarter, its worst showing since 2013. The wider retreat has been driven by rising expectations that the Fed could tighten policy, with the US dollar and Treasury yields gaining ground.

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Bullion-backed exchange-traded funds, a key way for investors to gain exposure to gold, have also seen consistent net outflows in recent months.

The unexpectedly sharp slowdown in inflation has bought the Fed more time to consider its options. Swap traders are now pricing in only a 17 per cent chance of a rate hike in July, down from nearly 50 per cent the day earlier.

“The consumer price index print will help cement the US$4,000 level as a floor for gold but Warsh’s comments were quite hawkish, which limits enthusiasm around the potential for lower interest rates,” said Justin Lin, an analyst at Global X ETFs.

“This round of CPI also does not account for renewed US-Iran strikes and the latest rise in crude, so markets may discount the print in favour of future signals,” he said.

In the Middle East, US President Donald Trump backed away from his plan to impose a 20 per cent charge on cargo shipments through the Strait of Hormuz after US allies in the Gulf urged him to drop it.

Washington resumed, however, its blockade of Iranian vessels and launched strikes designed to degrade the Islamic Republic’s ability to attack commercial shipping in the region.

Spot gold was little changed at US$4,054.36 an ounce at 7.45 am in Singapore. Silver rose 0.2 per cent to US$58.80 an ounce, after advancing 1.8 per cent on Tuesday.

Platinum and palladium were flat. The Bloomberg Dollar Spot Index, a gauge of the US currency, was marginally lower after ending the previous session down 0.4 per cent. BLOOMBERG