Gold extends losses as inflation data cools Fed rate cut hopes

On Tuesday, gold prices saw heavy losses after spot prices slid below the key $2,000 an ounce support level. The decline came as traders pared back expectations for interest rate cuts by the Federal Reserve on the back of hotter-than-expected U.S. inflation data.

Spot gold (XAU/USD) extended its decline, trading at $1,987.57 per ounce as of 08:20 GMT on Wednesday. The yellow metal could see further declines after breaking the major technical support. The next key support sits around $1,970 an ounce should the decline persist.

The losses followed U.S. consumer price index (CPI) data on Tuesday showing inflation rose faster than expected in January. The reading lent credence to Fed warnings that persistent inflation will keep rates higher for longer. Traders subsequently scaled back bets for rate cuts in May and June, though a 25 basis point June cut still holds 51% odds.

Higher rates dull gold’s appeal by increasing the opportunity cost of holding the non-yielding asset. Elevated expectations for sustained high rates have capped major gold price gains.

The latest inflation data and subsequent damping of rate cut expectations risk further declines for gold unless expectations for monetary easing are revived. Key upcoming US economic data, including the Empire State Manufacturing Index, Retail Sales, and Unemployment Claims on Thursday, will be closely monitored for their potential impact on monetary policy outlook and gold’s next move.