Gold slips in Asia with traders digesting cooling US inflation

Gold edged lower in Asia as investors digested the impact of cooler inflation in the US on the Federal Reserve’s monetary tightening path.

Bullion initially jumped on Wednesday after the US consumer price index decelerated by more than expected in July — suggesting the Fed could be less aggressive in raising interest rates — but ended 0.1% lower. Some traders pared bets on tightening, with a half-point rate increase being re-established as the likeliest outcome next month, as opposed to another three-quarter point hike.

Still, two Fed officials responded to the softening inflation by saying it doesn’t change the US central bank’s path toward even higher interest rates. Minneapolis Fed President Neel Kashkari said Wednesday that he wants the benchmark rate at 3.9% by the end of this year and at 4.4% by the end of 2023, adding that it wasn’t realistic to conclude the Fed will start cutting early next year.

His counterpart in Chicago, Charles Evans, said inflation remains “unacceptably high” and that he expects “that we will be increasing rates the rest of this year and into next year to make sure inflation gets back to our 2% objective.”

“Despite the improvement, inflation is still well above Fed’s target level and one reading may not be enough to change their tightening stance,” said Madhavi Mehta, a senior analyst at Kotak Securities Ltd. “Easing inflationary pressure also reduces gold’s demand as an inflation hedge.”

Spot gold declined 0.3% to $1 786.26 an ounce as of 12:26 p.m. in Singapore. Prices rose as much as 0.8% to $1 807.93 on Wednesday, the highest level since July 5. The Bloomberg Dollar Spot Index climbed 0.1%, after dropping 1% in the previous session. Silver and palladium fell, while platinum climbed.

© 2022 Bloomberg