Gold Stabilizes Near $4,000 as Softer Inflation Data Undoes Rate Hike Bets

Gold Stabilizes Near $4,000 as Softer Inflation Data Undoes Rate Hike Bets​

Spot gold steadied near $4,000 an ounce on Thursday after fresh US inflation data softened expectations for aggressive interest-rate hikes by the Federal Reserve. This move capped a volatile week for bullion, which had recently slumped to lows not seen since November. The price action suggests that mounting fiscal concerns are beginning to ease pressure on precious metals.

Impact of US Inflation Data on Interest Rates​

Treasury yields dipped after the release of the US personal consumption expenditures price index (PCE), which is the Fed’s favored inflation gauge. The data showed the PCE rose by a less-than-expected 0.4% in May. This result has recalibrated market expectations regarding future monetary policy actions.

Bond traders are now pricing in slightly reduced probabilities for a rate hike this year. Furthermore, the chance of an interest rate increase next month has dwindled to approximately one in three. Higher borrowing costs traditionally act as a headwind for non-yielding precious metals.

Gold’s Reversal and Broader Market Trends​

Spot gold saw a marginal decline, dropping 0.3% to $4,014.88 an ounce at 8:31 a.m. in Singapore. This movement comes after the metal had clawed back 0.7% in the previous trading session. Despite this minor dip, the commodity remains supported as investors re-evaluate global risk scenarios.

The decline represents a sharp reversal from recent months, following a multi-year bull run for the asset. Previously, gold’s rally was supercharged by the "debasement trade," driven by mounting fiscal debt in developed economies. That specific trading momentum has since dissipated.

Dollar Strength and Precious Metal Performance​

A gauge of the dollar snapped its winning streak on Thursday after gaining 1.8% since the last Fed meeting. At that prior gathering, policymakers had signaled support for higher borrowing costs, and new chair Kevin Warsh adopted a hawkish tone. A stronger US dollar makes commodities priced in the US currency more expensive for international buyers.

Beyond gold, the precious metal market saw shifts across the board. Silver fell 0.7% to $57.44, nearly erasing earlier gains from the day. Platinum and palladium also traded lower, while the Bloomberg Dollar Spot Index was recorded up 0.1%.

Expert View on Rate Expectations​

Market strategists note that gold has largely priced in the risk of further Fed tightening. However, David Chao, a market strategist at Invesco, stated that the metal has not yet absorbed a sustained "higher-for-longer" real yield regime. Despite the hawkish tone from the recent Fed meeting, Mr. Chao indicated he does not believe the Federal Reserve will hike rates.