Gold prices retreated on Wednesday after a report showing inflation fell to its lowest point in more than three years, dampening market hopes for a more aggressive interest rate cut when the Fed meets next month.
The yellow metal was down $20.56 at $2,443 per ounce in a volatile trading session only two days after it appeared on track to challenge its mid-July high of $2,482 per ounce. Silver was also caught up in the whipsaw session, falling by more than 1% to trade at $27.43 per ounce, down $0.41.
The driver was a U.S. Bureau of Labor Statistics report revealing that the Consumer Price Index (CPI) – which measures how much consumers are paying for goods and services – increased 0.2% last month, after declining 0.1% in June. The year-over-year inflation came in at 2.9%, notching the smallest 12-month increase since March 2021.
The core CPI, which strips out food and energy because of their often-erratic price swings, also rose 0.2% in July, while core year-over-year inflation rose by 3.2%, representing the smallest 12-month increase since April 2021, according to the data.
The CPI and core CPI figures – which were both in line with Wall Street estimates – reduced market expectations of a more substantial interest rate cut by the Fed when policymakers meet next month.
Before Wednesday’s CPI data, the market had projected the Fed could cut interest rates by 50 basis points during its September 17-18 meeting, but the outlook has since been adjusted in favor of a more modest trim of 25 basis points, according to the CME FedWatch Tool.
“A September cut is a mortal lock; at the moment, the data is suggesting the Fed will start with 25 (basis points), which would be a disappointment to the market, which likes to overshoot,” New-York based independent metals trader Tai Wong told Reuters.
Investors will be eyeing Thursday’s U.S. retail sales and initial jobless claims report to find a possible near-term upside for the precious metal.
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