Gold dips as large rate-cut hopes dim after US CPI data

Gold prices fell in a volatile trade on Wednesday after data showed U.S. consumer prices rebounded as expected in July, pouring water on expectations for a sizeable rate cut from the Federal Reserve next month.

Spot gold fell 0.4% to $2,455.91 per ounce by 1338 GMT. U.S. gold futures slipped 0.5% to $2,494.50.

“A September cut is a mortal lock; at the moment the data is suggesting the Fed will start with 25 bps which would be a disappointment to the market which likes to overshoot,” said Tai Wong, a New York-based independent metals trader.

The U.S. consumer price index increased 0.2% last month, after falling 0.1% in June, the Labor Department’s Bureau of Labor Statistics said. In the 12 months through July, the CPI increased 2.9%, after advancing 3% in June.

Markets now see a 41% chance of a 50 basis point rate cut by the Fed in September versus that of 50% prior to the release of U.S. CPI data, according to the CME FedWatch Tool. Lower interest rates reduce the opportunity cost of holding the non-yielding bullion. “Expectations now have shifted back in favor of just a 25 basis point cut, so that could be taking some of the momentum away from the gold market,” said Phillip Streible, chief market strategist at Blue Line Futures. Atlanta Fed President Raphael Bostic said on Tuesday he wanted to see “a little more data” before he was ready to support lowering interest rates.

“We are still in an environment of significantly elevated geopolitical tensions which always benefits gold,” said Ben Hoff, Head of Commodity Strategy at Societe Generale.

Non-yielding gold has risen 19% so far this year, after spot prices touched a record high of $2,483.60 on July 17, owing to firm safe-haven demand and Fed rate-cut expectations.

Elsewhere, spot silver fell 0.2% to $27.77 and platinum dipped 0.6% to $930.25. Palladium was down 0.4% at $935.31.