Gold & Silver

Gold near 1-week high; weak US inflation prompts Fed rate cut bets

Reuters April 29 | Updated on April 29, 2019 Published on April 29, 2019

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Gold steadied on Monday, trading near a more than one week high touched in the previous session, on increased bets that the US Federal Reserve might cut interest rates this year after recent data showed inflationary weakness.

Lower interest rates in the US put pressure on the dollar and bond yields, making greenback-denominated gold less expensive for holders of other currencies. It also increases the appeal of non-yielding assets such as bullion.

Spot gold was steady at $1,285.65 per ounce at 0426 GMT, having hit its highest since April 16 at $1,288.59 in the previous session. Meanwhile, US gold futures shed 0.1 per cent to $1,287.70 an ounce.

“The gross domestic product (GDP) figures that came out in the US, cast some doubt on the state of its economy and the strength of the US consumer,” said IG Markets analyst Kyle Rodda, adding that it has prompted some traders to expect a rate cut from the Fed.

The metal posted its biggest daily percentage gain in seven weeks on Friday after the dollar fell against a basket of currencies, as investors overlooked the strong economic growth in the US to focus on the pain points.

Data showed that US first quarter growth of 3.2 per cent was only motivated by the short-term stimuli of a dwindling trade deficit and the largest accumulation of unsold merchandise since 2015, which may later weigh on the country's economic picture.

Instead, the core personal consumption expenditure price index figure, the Fed's preferred metric of inflation, increased at only a 1.3 per cent rate versus 1.8 per cent in the prior quarter.

About a third of economists polled by Reuters on April 25, already expect one real rate cut by 2020.

“The Fed is likely to wait until after the summer before signalling a rate cut, but if they are overly concerned with tame inflation, they could tee up a cut for the end of the year,” Edward Moya, senior market analyst at OANDA wrote in a note.

Holding a firm roof over a further rise in gold prices are upbeat equities that imbibed the momentary boost from the US GDP figures, beating analyst estimates.

A recent uplift in equities had kept gold under the wraps of-late with holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, falling 0.16 per cent to its lowest since October 19 at 746.69 tonnes on Friday.

Holdings have fallen by over 3 per cent since the beginning of this month. Elsewhere, silver held firm at $15.05 per ounce, while platinum gained 0.1 per cent to $895.25.

Palladium fell 0.7 per cent at $1,455.01, having climbed to its highest in a month at $1,465.01 in the previous session.

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Published on April 29, 2019
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