Gold climbs toward record ahead of US inflation data release

Bloomberg

Gold extended Monday’s gain ahead of key US inflation data, which may provide traders with a firmer view on when the Federal Reserve will start cutting interest rates.

The core personal consumption expenditures index, due on Good Friday, is expected to show inflation probably remained uncomfortably high in February. That could hinder plans by US policymakers to implement three interest rate cuts this year.

Lower borrowing costs typically benefit the precious metal, which doesn’t bear interest.

Swaps markets showed wagers on a rate reduction in June are now at 63 percent, down from 69 percent late last week, after Fed Bank of Atlanta President Raphael Bostic on Monday reiterated his expectation for just one cut this year.

Still, gold remains near an all-time high as the central bank’s long-awaited pivot to monetary easing builds momentum in the market.

Bullion’s gains since mid-February have also been underpinned by long-standing supports including heightened geopolitical risks in the Middle East and Ukraine, plus buying by central banks, led by China.

Inflation and interest rates are also in focus in Europe. European Central Bank Governing Council member Madis Muller said data over the coming weeks may be sufficient to confirm the slowdown in inflation by the time policymakers set borrowing costs in June.

The precious metal was also bolstered on Tuesday by weaker US dollar, which snapped a two-day rally after the People’s Bank of China on Monday set a stronger-than-expected reference rate for the yuan.

Bullion “moved higher again as the underlying demand for gold staying firm amid the prospect for rate cuts, geopolitical tensions, and today a slightly softer dollar,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S.

Spot gold rose 1% to US$2 193.92 an ounce as of 10:38 a.m. in London. The Bloomberg Dollar Spot Index was down 0.1 percent. Silver and platinum edged higher, while palladium fell.