- Gold struggled due to soaring Treasury yields, which reached their highest levels in 16 years.
- The US economy maintained solid growth in Q2.
- Investors are expecting the release of the Fed’s preferred measure of inflation.
Gold prices tumbled on Thursday as investors evaluated recent US economic data and awaited a crucial inflation report. They also closely watched Washington to see if US lawmakers could prevent a government shutdown.
Gold also struggled due to soaring Treasury yields, which hovered near their highest levels in 16 years. This rise followed the Federal Reserve’s indication of a hawkish long-term interest rate outlook last week.
Meanwhile, data revealed that the US economy maintained solid growth in Q2.
US consumer spending and GDP (Source: Bureau of Economic Analysis)
The government reported that gross domestic product grew at an annualized rate of 2.1% in April-June. This figure aligned with what economists had anticipated. Furthermore, consumer spending growth was revised downward to a modest rate of 0.8%, down from the previously stated pace of 1.7%.
Separate reports showed a slight increase in initial jobless claims last week and a larger-than-expected drop in contracts to buy existing homes in August. Moreover, investors eagerly anticipated Friday’s release of the personal consumption expenditures price index for the latest insights into inflation.
In Washington, the Democratic-led US Senate pushed a bipartisan stopgap funding bill to avoid the fourth government shutdown in a decade.
Gold fell on Wednesday amid reduced interest in non-yielding bullion and expectations that the Federal Reserve might maintain elevated interest rates. Traders were hoping for more guidance from US inflation figures this week. The anticipation of persistently higher US rates led investors to scramble for the dollar, making gold more costly for foreign buyers.
Ryan McKay, a commodity strategist at TD Securities, commented, “As long as the narrative remains higher-for-longer, it’s going to continue pressuring precious metals.” He also noted that rising inflation data would further weigh on gold.
The Fed’s preferred measure of inflation, the US personal consumption expenditures (PCE) index, will come out on Friday. ANZ analyst Soni Kumari mentioned, “If the inflation number falls, we could see some support coming to gold, and the expectation of tightening monetary policy could dampen a bit.”
However, gold continued to receive some support from robust physical demand, particularly from central banks and China. Nonetheless, TD’s McKay emphasized, “the near-term dynamics are certainly the Fed.”