• Gold price faces pressure while investors see the Fed keeping interest rates at current levels until the third quarter of this year.
• US core inflation has come in higher than expected for three months in a row.
• Increasing geopolitical tensions and physical Gold buying by global central banks are expected to limit Gold’s downside.

Gold price (XAU/USD) edges down to $2,330 in Thursday’s European session as traders have priced out strong speculation that the Federal Reserve (Fed) will pivot to rate cuts in the June meeting. Investors pare Fed rate cut bets drastically after the United States Consumer Price Index (CPI) report for March showed that core price pressures rose more than expected for straight three months.

Hot inflation figures have heightened fears that US interest rates will remain higher in the range of 5.25%-5.50% for a longer period. This is a favorable scenario for interest-bearing assets, such as US bonds and the US Dollar. 10-year US Treasury yields fell slightly to 4.56% in Thursday’s London session but remain close to more than a four-month high. The US Dollar Index (DXY) trades close to an almost five-month high near 105.30.

Generally, higher bond yields increase the opportunity cost of holding investments in non-yielding assets such as Gold. Gold price has retreated from fresh all-time highs at $2,365. However, the near-term demand for Gold is still intact due to heightened geopolitical risks. Fears of direct involvement of Iran in the Israel-Hamas war in Gaza have increased as the Israeli army is planning to invade Rafah, where most of the displaced Palestinians are refuged. 

Apart from that, pent-up demand for Gold from global central banks is expected to keep its price supported. The World Gold Council (WGC) showed early this week that China extended its Gold buying spree in February for the 17th consecutive month. 

Daily digest market movers: Gold price falls while US Dollar advances

• Gold price falls to $2,330 as Federal Reserve rate cut expectations fade after the United States consumer price index data for March turned out sticky. The US inflation rose more than expected due to higher gasoline prices, rentals and insurance costs.
• The monthly headline and core CPI grew by 0.4%, while investors had forecasted a slower growth rate of 0.3%. In the first three months of this year, monthly core inflation rose steadily by 0.4%, more than double from 0.17%, the pace required for price pressures to return to the desired rate of 2%.
• Price pressures remaining stubbornly higher in the first quarter, along with strong labor market conditions, will allow Fed policymakers to delay rate cut plans. The Federal Open Market Committee (FOMC) minutes for the March meeting, released on Wednesday, indicated that policymakers were worried about higher-than-expected inflation readings in the first two months of this year.
• The CME’s Fedwatch tool shows that bets supporting rate cuts in the June and July meetings have been winded, and traders are now expecting the Fed to begin reducing borrowing costs from the September meeting. Also, financial market participants are anticipating that the Fed will cut interest rates only two times this year instead of three, which is what policymakers projected in the latest dot plot. At the start of the year, investors anticipated as many as six rate cuts for 2024.
• In Thursday’s session, investors will focus on the US Producer Price Index (PPI) data for March, which will be published at 12:30 GMT. Annual headline PPI is forecasted to have grown strongly by 2.2% after increasing by 1.6% in February. Monthly headline PPI is estimated to grow by 0.3% Annual core PPI, which excludes volatile food and energy prices, is anticipated to have risen sharply by 2.3% against the former reading of 2.0%.  
• Stronger-than-projected PPI figures would further dent Fed rate cut prospects, strengthening downward pressure on Gold, while soft numbers will do the opposite.