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Gold drops on Fed rate cut prospects after inflation data


Spot gold experienced a decline of 1.4% to $2,153.05 per ounce, stepping back from its record high of $2,194.99 reached on Friday

The possibility of the Federal Reserve cutting interest rates soon was diminished by the U.S. inflation report.

As a result, spot gold experienced a decline of 1.4% to $2,153.05 per ounce, stepping back from its record high of $2,194.99 reached on Friday. Similarly, U.S. gold futures settled 1% lower at $2,166.1.

The report indicated that U.S. consumer prices had solidly increased in February, suggesting some persistence in inflation.

The Consumer Price Index showed a monthly rise of 0.4% in February and an annual increase of 3.2%, surpassing the forecast of 3.1%.

CPI comes in a bit sweaty but the market was expecting a high print so the initial reaction was a bit muted but prices have been volatile since, said Tai Wong, a New York-based independent metals trader.

He said gold bulls would still look for reasons to drive it higher. Now focus will shift to next week’s Fed meeting where there will be an updated dot plot, Wong added, referring to central bankers’ interest rate forecasts.

Despite this, the market still reflects a probability of around 70% for a U.S. rate cut by June, per the CME FedWatch tool. The next U.S. central bank policy meeting is scheduled for March 20.

Lower interest rates are helpful for gold prices as they reduce the opportunity cost of holding the precious metal, which does not earn any interest.

In the short run, prices will see some consolidation and probably stabilise around $2,100 level and will break above $2,200 by the end of the second quarter this year, according to Aakash Doshi, head of commodities, North America at Citi Research.

Spot platinum experienced a decline of 1.5% to $919.20 per ounce, while palladium remained steady at $1,031.04.

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