Gold falls as CPI data dampens talk of oversized US rate cut

Gold prices fell on Wednesday as the dollar and Treasury yields firmed after US inflation data prompted investors to scale back expectations of an oversized rate cut from the Federal Reserve next week.

Spot gold was down 0.1% at USD 2,513.19 per ounce at 1:46 p.m. ET (1746 GMT).

US gold futures settled mostly unchanged at USD 2,542.40.

US consumer prices rose only slightly in August, but underlying inflation showed some stickiness, which could dissuade the Fed from delivering a half-point interest rate cut next week.

“Inflation is still here. The consumer is still feeling it. If they do a half, it signals they’re throwing in the towel here… a quarter point is something that they’re almost forced into doing here at this point,” said Bob Haberkorn, senior market strategist at RJO Futures.

Markets are currently pricing in an 87% chance of a 25-basis-point US rate cut, compared to 71% before the data, the CME FedWatch tool showed.

The Fed will lower interest rates by 25 basis points at each of the three remaining policy meetings in 2024, according to a majority of economists in a Reuters poll that found only nine out of 101 expected a half-percentage-point cut next week.

“The uptick in core CPI has more or less cemented at 25 bps cut next week … A new all-time high (for gold prices) may have to wait just a little longer,” said Tai Wong, a New York-based independent metals trader.

Markets will now look towards the US producer price index reading and initial jobless claims due on Thursday.

Among other metals, spot silver was up 0.8% at USD 28.60 per ounce, platinum rose 1.9% to USD 955.73 and palladium firmed 4.8% to USD 1,011.09.

Russian President Vladimir Putin said that Moscow should consider limiting exports of uranium, titanium and nickel in retaliation against the West.

Palladium prices are rising due to changes in export regulations, particularly in Russia, said Daniel Pavilonis, senior market strategist at RJO Futures.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Mark Potter, Alan Barona and Janane Venkatraman)