Gold surges on retreating T-yields ahead of US inflation reading

Gold surges amid growing expectations of Fed rate cuts in September. US 10-year Treasury yield drops to 4.288%, while US Dollar Index falls below 105.00. Inflows into Gold ETFs support the metal, with eyes now on US June inflation data and economic indicators.

Gold price escalated on Wednesday for back-to-back days amid growing speculation that the Federal Reserve (Fed) could begin to slash higher interest rates at the September meeting. Consequently, US Treasury bond yields and the Greenback fell, a tailwind for the golden metal. The XAU/USD trades at $2,372, up by more than 0.30%.

Falling US Treasury bond yields and a soft US Dollar bolstered the non-yielding metal. The US 10-year benchmark note coupon dropped one-and-a-half basis points (bps) to 4.288%, while the US Dollar Index (DXY) trended below the 105.00 mark, losing 0.06%.

In his appearance at the US House of Representatives, Fed Chair Jerome Powell repeated most of his remarks revealed at a US Senate committee on Tuesday. He acknowledged the progress on inflation, yet Powell stated the board is not confident that lowering rates will help prices reach the 2% goal.

Despite ongoing pullbacks, Gold remains underpinned by a second consecutive month of inflows into gold exchange-traded funds (EFTs) in June, driven by additions to holdings by Europe and Asia-listed funds.

With Fed Chair Powell’s semi-annual testimony in the rearview mirror, investors eye the release of US June inflation figures on Thursday. That, Initial Jobless Claims and the University of Michigan Consumer Sentiment data will set Gold’s direction.

US CPI is expected to decrease from 3.3% to 3.1% annually in June, while core inflation is projected to remain steady at 3.4% YoY. According to the consensus, Initial Jobless Claims for the week ending July 6 are expected to increase from 238K to 240K.

July Consumer Sentiment is forecast to improve to 68.5, up from 68.2 in June, according to the consensus. Gold prices retreated somewhat due to the People’s Bank of China’s (PBoC) decision to halt gold purchases in June as it did in May. China held 72.80 million troy ounces of the precious metal at the end of June.

Investors are pricing in 71% odds of a Fed rate cut in September, up from 70% on Tuesday. December 2024 fed funds rate futures contract implies that the Fed will ease policy by 39 basis points (bps) toward the end of the year.