Gold edges lower as inflation data set to drive next rate move

Gold edged down, with investors turning their focus to upcoming US inflation data that will influence the Federal Reserve as it mulls when to pause its monetary tightening cycle, Bloomberg reports.

The precious metal is up about 0.5% since Monday following a 1.4% increase last week, to put it within reach of a record high. Core consumer price index figures due Wednesday are expected to show headline inflation in the US rose by 5% in April on a year-on-year basis, a level likely to be still uncomfortably high for the Fed.

Options traders are now betting on further rate hikes in the next couple of central bank policy meetings in June and July. While higher rates are generally negative for non-interest-bearing bullion, gold could be entering a “win-win scenario,” according to Oanda senior market analyst Ed Moya.

“A hot inflation report will justify higher rates for longer that will cripple growth prospects and trigger a stock market selloff,” potentially boosting short-term haven demand for bullion, Moya said in a note. “A cooling round of inflation data points could vindicate calls that the Fed is done tightening and support Fed rate cuts to happen later in the year.”

Still, the path forward is uncertain, with investors weighing the state of the economy. Federal Reserve Bank of New York President John Williams on Tuesday said he is monitoring how strains in the banking sector affect the US economy and left the door open to leaving interest rates on hold next month.

Meanwhile, a looming US debt ceiling crisis is further deteriorating investor sentiment. A failure to find a resolution presents a genuine risk to the standing of the dollar, boosting the appeal of bullion.

Spot gold slid 0.3% to $2,028.58 an ounce as of 2:33 p.m. in Singapore. The Bloomberg Dollar Spot Index was little changed. Silver slipped, while palladium and platinum were steady.