Gold advances as rate cut bets firm ahead of US inflation test

March 26 – Gold prices climbed on Tuesday, as expectations of interest rate cuts by the US Federal Reserve firmed, while investors waited for data due later in the week for underlying inflation trends that will help gauge the timing of these cuts.

Spot gold rose 0.2%, to USD 2,176.59 per ounce, by 02:01 p.m. EDT (1801 GMT), having jumped as much as 1.3% earlier in the session.

US gold futures settled 0.04% higher at USD 2177.2.

“Closer to the summer, you’re going to see gold go higher just with the expectation of rate cuts, unless the Fed changes stance or makes some announcement that they’re taking cuts off the table, which I don’t see them doing at this point,” said Bob Haberkorn, senior market strategist at RJO Futures.

Market focus is on the US Core Personal Consumption Expenditure Price Index data PCE due on Friday.

“If the (PCE) numbers are higher than expected, then gold will probably pull back, but I expect those dips to be brought up fairly quickly,” Haberkorn said.

Market reaction to the data may only be seen next week, on account of the Good Friday holiday.

Gold logged a record high of USD 2,222.39 last week after Fed policymakers indicated they still expected to cut rates by three-quarters of a percentage point by end-2024.

Traders are now seeing a 71% chance of a June rate cut. Lower interest rates boost the appeal of holding non-yielding bullion.

Gold prices also continue to find support from elevated physical demand from Chinese households, where gold’s record rally has not tarnished the buying appetite.

Central bank purchases also sustain their support for gold, with China’s central bank steadily building its gold reserves.

“The motivating factor for their gold purchases is diversification away from the G7 currencies, after these currencies were weaponized in 2022 following the (Russia-)Ukraine war,” said Nitesh Shah, commodity strategist at WisdomTree.

Spot silver fell about 1% to USD 24.44, platinum fell 0.1% to USD 901.73, while palladium lost about 1.1% to USD 994.35.

(Reporting by Anjana Anil in Bengaluru and Polina Devitt in London; Editing by Pooja Desai and Krishna Chandra Eluri)