Gold poised for gains as inflation data fuels hopes of Fed rate cuts

Gold prices are nearing a key breakout point, fueled by data suggesting inflation might ease and prompt the Federal Reserve to cut interest rates sooner than expected.

Spot gold (XAU/USD) was hovering around $2,047 by 07:30 GMT, nearing a breakout above $2,050. Only continued dollar strength is seen as a potential hurdle to further gains.

Data released on Thursday showed the Fed’s preferred inflation gauge, the PCE price index, easing as expected in January. This has ignited hopes that inflation will continue to fall in the coming months, potentially giving the Fed enough room to cut rates in June.

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However, market expectations for a June rate cut remain subdued, with the CME Fedwatch tool indicating only a slight increase in bets for a cut, while expectations for a hold remain steady.

Furthermore, several Fed officials have cautioned that persistent inflation might prevent the central bank from loosening policy anytime soon, implying that any future inflation upticks could dampen the prospects of a June rate cut.

Inflation data for February and March are now seen as crucial in determining the future trajectory of gold prices in the coming months, given the close correlation between the precious metal and U.S. rate expectations over the past two years.

Rising interest rates have pressured gold prices, as holding the non-yielding asset becomes less attractive.