Gold retreats from two-month high as traders await US PPI
LONDON (August 13) Gold (XAU/USD) comes under selling pressure on Thursday, erasing all the gains recorded in the previous day after hitting a fresh two-month high of $4,449 during Asian trading hours. At the time of writing, the precious metal trades around $4,386, down 0.52% on the day.
The pullback appears to be driven mainly by profit-taking, as market participants remain reluctant to chase prices higher amid an uncertain macroeconomic backdrop. The recent rally from near $4,000 has largely been fuelled by softer US economic data, including a broadly in-line Consumer Price Index (CPI) and weaker-than-expected Nonfarm Payrolls (NFP) reports for July. These releases have reduced the chances of an imminent interest-rate hike by the Federal Reserve (Fed).
According to the CME FedWatch Tool, markets now assign a 36% probability of a September rate hike, down from 54% a week ago. As a result, front-end US Treasury yields are falling for a third consecutive day, which could keep Gold’s downside limited in the near term.
Attention now turns to the US Producer Price Index (PPI) due at 12:30 GMT, which could provide fresh clues about underlying inflationary pressures at factory gates.
Analysts at MUFG/BTMU highlight that the CPI data “supports our view that Fed is likely to leave rates on hold in September,” although they caution that “it is unlikely that the US rate market will scale back rate hike expectations much further in the near-term given a hike still can’t be ruled out.” They also flag ongoing upside risks to the inflation outlook, warning that “the lack of progress to reopen the Strait of Hormuz and elevated energy prices continues to pose upside inflation risks in the near-term.”
At the same time, they argue that “the lack of clear forward guidance from Fed Chair Kevin Warsh makes it harder to assess how they are likely to set policy going forward,” leaving markets to navigate a still uncertain policy path despite the latest CPI print.
Against this backdrop, Gold’s next directional move will depend largely on incoming US economic data and its impact on Fed interest rate expectations. Meanwhile, developments in the Middle East also remain in focus and continue to drive volatility across financial markets.
FXStreet
