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Gold to drop by a week's worth as US data dampens Fed rate cuts hopes

Gold to drop by a week's worth as US data dampens Fed rate cuts hopes

Gold prices fell by a significant amount on Friday as the Federal Reserve lowered rates in September. This was due to hotter than expected inflation data from the United States.

As of 0244 GMT, spot gold was up 0.1% at $3,339 an ounce. Bullion is down 1.8% this week. U.S. Gold Futures for December Delivery are flat at $3384.

Tim Waterer is the chief market analyst for KCM Trade. He said, "Gold still struggles with the PPI spike, which raises questions about just how far Fed may be inclined this year to reduce rates."

Labor Department data released on Thursday showed that the U.S. Producer Prices Index (PPI), which measures producer prices, rose 3.3% in July compared to the previous year, beating expectations of a 2.5% increase. The number of weekly jobless claims was lower than expected, at 224,000, compared to estimates of 228,000.

Separately U.S. consumer price increases were only marginal in July, which boosted hopes for a Fed rate reduction.

The Fed is less likely to opt for a 50-bps cut at its next meeting due to the fact that the PPI reading was higher than expected.

Waterer stated that if this spike in wholesale price becomes a trend, and then the CPI gains pace, it could reduce expectations of US rate cuts, which would hinder gold's performance on a yield basis.

Alberto Musalem, St. Louis Fed president, said that a rate cut of a half point in September is not warranted. This comes a day after Treasury secretary Scott Bessent had said this was possible.

Gold that does not yield is more likely to thrive in an environment with low interest rates.

Investors are not optimistic about a major breakthrough in the Ukraine war after the meeting between Donald Trump & Vladimir Putin on Friday, despite signs of progress.

Spot silver fell by 0.2%, to $37.91 an ounce. Platinum dropped 0.2%, to $1354.94, and palladium was down 0.3%, to $1142.51. (Reporting and editing by Sumana Nady and Rashmi Anich in Bengaluru)

(source: Reuters)