Gold prices pared gains on Thursday as U.S. Treasury yields rose after economic data showed signs of persistent inflation, dimming hopes that the Federal Reserve will cut short-term interest rates.
US Treasury yields rise
US Treasury yields hit more than five-month highs following the release of economic data. This raised expectations of persistent inflation and diminished the possibility of the Federal Reserve cutting short-term interest rates. This situation directly affected gold prices.
Spot gold cuts gains and consolidates its value
At 1700 GMT, spot gold gained 0.6% and hit $2,328.74 an ounce, however this represented a drop of more than $100 from its record high of $2,431.29 on April 12. Despite the consolidation, gold remains attractive as a hedge against inflation.
Impact on economic growth and interest rates
U.S. economic growth slowed more than expected in the first quarter, but rising inflation suggests the Federal Reserve will not cut rates before September. This can impact investor confidence and demand for gold as a safe haven.
The Fed is not in a position to cut rates
According to Bob Haberkorn of RJO Futures, gold is trading on additional data showing that the Federal Reserve is not in a position to cut interest rates anytime soon. This signal can influence investors’ decision about the precious metal.
Gold consolidation and possibility of exchange
After a spectacular rise in gold in recent weeks, it is in the midst of consolidation, said David Meger of High Ridge Futures. However, this situation could change in the short term if a benign inflationary impression occurs and inflation reduces further.
