The price of gold (XAU/USD) slipped to around $2,405 in early Asian trading on Monday, pressured by stronger-than-anticipated wholesale price inflation data from the United States for June. The market is now keenly awaiting several critical economic indicators, including China’s Gross Domestic Product (GDP) for the second quarter (Q2), the US NY Empire State Manufacturing Index for July, and a speech by Federal Reserve (Fed) member Mary Daly, all scheduled for later today.
Data released by the Bureau of Labor Statistics on Friday revealed that the US Producer Price Index (PPI) rose to 2.6% year-on-year in June, up from a revised 2.4% in the previous reading and surpassing market expectations of 2.3%. On a month-on-month basis, the PPI increased by 0.2% in June, exceeding the market consensus of 0.1%. Additionally, Producer Prices excluding Food and Energy also climbed more than expected both annually and monthly.
Despite this pressure, the downside for gold might be limited due to expectations that the Fed could begin its easing cycle sooner than previously anticipated, potentially in September. Lower interest rates generally boost the attractiveness of gold, a non-interest-bearing asset. According to the CME FedWatch Tool, financial markets are now pricing in nearly 80% odds of a 25 basis points (bps) cut in September.
Moreover, ongoing global political uncertainty and geopolitical tensions, particularly in the Middle East, could enhance safe-haven flows, further supporting precious metals. In a notable incident on Saturday, former President Donald Trump was shot in the ear during a rally in Butler, Pennsylvania, in what the FBI has described as an assassination attempt, according to CNN.
Overall, while gold faces immediate pressure from rising US inflation data, the potential for early Fed rate cuts and geopolitical risks may provide a cushion for the precious metal in the near term.
