By Anushree Ashish Mukherjee
(Reuters) – Gold prices fell on Wednesday as the dollar and Treasury yields firmed after U.S. inflation data prompted investors to scale back expectations of an over-sized rate cut from the Federal Reserve next week.
Spot gold was down 0.4% at $2,505.17 per ounce at 9:40 a.m. ET (1340 GMT). U.S. gold futures were down 0.4% to $2,533.70.
Following the data, the dollar index was up 0.1% and benchmark U.S. 10-year yields also edged higher, putting pressure on bullion. [USD/][US/]
U.S. consumer prices rose only slightly in August, but underlying inflation showed some stickiness, which could dissuade the Fed from delivering a half-point interest rate cut next week.
“Inflation is still here. The consumer is still feeling it. If they do a half, it signals they’re throwing in the towel here … a quarter point is something that they’re almost forced into doing here at this point,” said Bob Haberkorn, senior market strategist at RJO Futures.
Markets are currently pricing in an 85% chance of a 25-basis-point U.S. rate cut, compared to 71% before the data, the CME FedWatch tool showed.
The Fed will lower interest rates by 25 basis points at each of the three remaining policy meetings in 2024, according to a majority of economists in a Reuters poll that found only nine of 101 expected a half-percentage-point cut next week.
“The uptick in core CPI has more or less cemented at 25 bps cut next week… A new all-time high (for gold prices) may have to wait just a little longer,” said Tai Wong, a New York-based independent metals trader.
Markets will now look towards the U.S. producer price index reading and initial jobless claims due on Thursday.
Among other metals, spot silver was up 0.2% at $28.44 per ounce, platinum rose 0.4% to $941.30, and palladium firmed 1.4% to $978.39.
(Reporting by Anushree Mukherjee in Bengaluru; Editing by Mark Potter)
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