Gold climbs as cooling U.S. inflation bolsters Fed rate cut optimism

Gold hit a more than three-week high on Wednesday, aided by a weaker dollar and lower Treasury yields after data showed U.S. consumer prices rose less than expected in April, boosting chances the Federal Reserve will cut interest rates later this year.

 

Spot gold was 1.2% higher at $2,386.65 an ounce. U.S. gold futures for June delivery rose 1.2% to $2,392.40 an ounce.

The consumer price index data “could be an early indication that over time inflation will cool and the Fed will make its first interest rate cut” in the current cycle, said Phillip Streible, chief market strategist at Blue Line Futures.

U.S. CPI rose 0.3% last month after advancing 0.4% in March and February, suggesting that inflation resumed its downward trend at the start of the second quarter, boosting financial market expectations for a September interest rate cut from the current fed funds rate of 5.25%-5.50%.

Economists polled by Reuters had forecast the CPI rising 0.4% in April and advancing 3.4% year-over-year.

The dollar dropped 0.4% against a basket of other major currencies to hit its lowest in over a month, making gold more attractive for other currency holders. Benchmark 10-year Treasury yields touched a more than one-month low.

Technically, the gold bulls have the overall near-term technical advantage. Bulls’ next upside price objective is to produce a close in June futures above solid resistance at $2,400.00, wrote Jim Wyckoff, senior analyst at Kitco Metals in a note.

Traders are now pricing in about a 70% chance of a U.S. rate cut in September, according to the CME FedWatch Tool. Lower interest rates reduce the opportunity cost of holding gold, which doesn’t earn any income or pay a dividend.