In the early New York session on Thursday, the price of gold (XAU/USD) witnessed a sharp decline following the release of a hotter-than-anticipated Producer Price Index (PPI) report by the United States Bureau of Labor Statistics (BLS). The precious metal faced significant pressure as concerns regarding persistent inflation intensified.
The surge in US inflation data for February, released earlier in the week, had already set a tone of apprehension among investors. The latest PPI data has exacerbated uncertainties surrounding Federal Reserve (Fed) rate cut expectations for the June policy meeting. Consequently, yields on 10-year US Treasury bonds climbed to 4.28%, driving up the opportunity cost of holding non-yielding assets like gold. The US Dollar Index (DXY) also rose to 103.10, further dampening investor appetite for gold due to its increased cost.
In contrast, the US Census Bureau reported that Retail Sales grew at a slower pace than market expectations, offering a contrasting picture of economic performance. Looking ahead, the primary determinant of gold prices will likely be the Fed’s interest rate decision, along with the release of the new dot plot, which provides projections for future interest rates. The previous dot plot, unveiled in the December meeting, indicated the possibility of three rate cuts this year.
Despite firmness in the US Dollar (USD) and bond yields, gold prices remain subject to fluctuations driven by evolving economic data and central bank policy decisions. Investors are advised to closely monitor developments surrounding the Fed’s stance and interest rate projections, as they are expected to heavily influence the trajectory of gold prices in the near term.
