Gold prices edged higher to around $4,060 during the early Asian session on Thursday, as softer-than-expected US inflation data fueled market expectations that the Federal Reserve will hold interest rates steady at its upcoming July policy meeting. According to the US Bureau of Labor Statistics (BLS), the Producer Price Index (PPI) — a key measure of producer-level inflation — fell to 5.5% year-on-year in June, down from a revised 6.0% in May. The reading came in well below the market consensus estimate of 6.2%.
On a monthly basis, the PPI declined by 0.3%, a sharp reversal from the revised 0.6% increase recorded in May, and also undershot expectations for no change. The softer PPI data followed similarly encouraging consumer inflation figures released the previous day, reinforcing a broader disinflation narrative that has begun to shift market pricing around Fed policy. According to the CME FedWatch Tool, traders now assign approximately a 10.2% probability of a rate hike at the Fed's July meeting, down from 16.6% prior to the release of the PPI data.
"Gold has pared losses from earlier this morning as PPI came in lower than expected and eased some of those concerns about the Fed having multiple interest rate hikes this year," said Phillip Streible, chief market strategist at Blue Line Futures. However, the precious metal's upside remains constrained by escalating geopolitical tensions in the Middle East. Escalating US-Iran hostilities and airstrikes around the Strait of Hormuz have pushed crude oil prices higher, raising concerns that elevated energy costs could keep central banks on a more restrictive monetary path for longer — a headwind for gold as a non-yielding asset.
The BBC reported that the United States launched fresh strikes against Iran on Wednesday evening, as President Donald Trump warned Tehran it "better behave." Iran's top negotiator, Mohammad Bagher Ghalibaf, stated that Tehran had "no reason" to abide by any deal if it did not benefit from it. Earlier in the week, Trump had threatened to strike bridges and power plants should Iran fail to return to negotiations. The dual forces of easing domestic inflation and rising geopolitical risk continue to shape the near-term outlook for gold, with investors weighing the prospects of Fed policy relief against the inflationary implications of higher energy prices stemming from Middle East instability.
Source: FXStreet, reporting by Lallalit Srijandorn.
Source: fxstreet.com