Gold prices wavered after weaker-than-expected US producer price data eased concerns about an immediate interest rate hike by the Federal Reserve. Spot gold was up 0.1% to $4,056.04 an ounce at 3:25 p.m. in New York, trading between gains and losses of less than 1% on Wednesday. This follows a significant drop in its value, losing 14% in the second quarter, its worst performance since 2013, due to expectations of tighter Fed policy, a stronger US dollar, and rising Treasury yields, alongside consistent outflows from bullion-backed exchange-traded funds.
The Producer Price Index (PPI) data indicated a softening of inflation pressures. The headline PPI fell 0.3% month-over-month in June, below the forecast of 0% and following a 0.6% rise in May. Annually, producer inflation slowed to 5.5% from 6.0%, also undershooting the 6.2% forecast. Core PPI, excluding food and energy, rose 0.2% month-over-month, below expectations of a 0.4% increase but above the prior 0.1% gain. The annual core rate edged up to 4.7% from 4.6%, remaining below the 5.2% forecast. This softer inflation data has reduced the likelihood of a Fed rate hike, with swap traders now pricing in only a 10% chance of a July rate hike, down from nearly 50% the previous day, according to the CME FedWatch Tool.
Despite the easing inflation concerns, gold's upside is capped by persistent inflation risks, primarily from rising oil prices due to renewed conflict in the Middle East. Oil prices gained for a third consecutive day, further impacting the interest rate outlook. New York Fed President John Williams stated that returning inflation to the 2% target on a sustained basis is imperative, expecting headline inflation to ease to around 3.25% by year-end, moving closer to target in 2027, and reaching 2% in 2028. Fed Chair Kevin Warsh also reiterated the central bank's commitment to bringing inflation back to its target, stating "no tolerance for persistently elevated inflation."
Other precious metals showed mixed performance: silver fell 1.5% to $57.82 an ounce, while platinum and palladium gained. The Bloomberg Dollar Spot Index, a gauge of the US currency, fell 0.4%. Investors are also awaiting China's second-quarter economic data, with analysts anticipating slower growth, which could dampen demand from one of the world's largest gold consumers, further influencing gold prices.
