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Gold prices fell on Wednesday, pressured by a stronger U.S. dollar and growing uncertainty ahead of a crucial U.S. inflation report that could influence the Federal Reserve’s decisions at its September policy meeting.
Gold Slips But Holds Key Level
Spot gold dropped 0.6% to $2,510.39 an ounce by 0953 GMT, though it remained above the important psychological level of $2,500. This decline follows a recent peak of $2,531.60 on August 20, which marked a record high for the precious metal.
The strengthening U.S. dollar played a significant role in gold’s decline. The dollar index, which measures the greenback’s performance against a basket of major currencies, rose by 0.36%. A stronger dollar typically makes dollar-denominated commodities like gold less attractive to buyers using other currencies, contributing to the downward pressure on prices.
Market Focus on U.S. Inflation Data
Market participants are keenly awaiting the release of the U.S. Personal Consumption Expenditure (PCE) data on Friday. As the Federal Reserve’s preferred measure of inflation, this report is expected to provide crucial insights into the central bank’s next moves regarding interest rates.
The CME FedWatch tool indicates that markets are currently pricing in a 66% chance of a 25 basis point (bps) rate cut in September, with a 34% probability of a more aggressive 50 bps cut. The anticipation of a rate cut, which would reduce the opportunity cost of holding non-yielding assets like gold, has been a significant factor in supporting gold prices in recent weeks.
Gold ETFs See Renewed Interest
Amid expectations of lower interest rates, physically backed gold exchange-traded funds (ETFs) have seen a resurgence in purchases after several years of outflows. According to the World Gold Council, gold ETFs experienced modest net inflows of 8 metric tons, valued at approximately $403 million, last week. This trend suggests that August is on track to mark the fourth consecutive month of inflows into gold ETFs.
Other Precious Metals Decline
Other precious metals also faced downward pressure on Wednesday. Spot silver fell by 1.5% to $29.55 an ounce, platinum slipped 0.9% to $945, and palladium decreased by 0.7% to $963.54.
Outlook
As the market remains focused on upcoming U.S. inflation data and the Federal Reserve’s policy decisions, gold prices are likely to remain sensitive to fluctuations in the dollar and broader economic indicators. The outcome of the PCE data release on Friday could provide further direction for both gold and other precious metals in the days ahead.
