Gold gains on soft inflation data ahead of Fed's interest rate decision

Gold prices rose about 1% on Wednesday after a surprisingly soft U.S. consumer inflation report raised hopes for an interest rate cut in 2024, while investors awaited the release of the Federal Reserve's latest policy statement and economic projections.

Spot gold climbed 0.92% to $2,337.47 per ounce by 1700 GMT. U.S. gold futures for August delivery were up 1.2% at $2,354.60.

The headline consumer price index was flat on a month-on-month basis in May, below expectations for a 0.1% gain. Core prices rose 0.2%, also below economists' projections for a 0.3% increase.

The data "puts two rate cuts back on the table ... that's what helps gold, because lower interest rates will help non-interest bearing assets such as gold," said Chris Gaffney, president of world markets at EverBank, adding the drop in the dollar due to lower interest rate expectations is also supporting the price of gold.
 

The dollar index was down 0.9%, and benchmark U.S. 10-year Treasury yields dropped to their weakest levels since April 1. [USD/] [US/]

Traders raised their bets to price in 50 basis points (bps) of Fed policy easing from 40 bps before the CPI data. Bets of a rate cut at the Fed's meeting in September rose to about 70% from around 54% prior to the data.

The inverse correlation between rates and gold is still there, and risk-on sentiment is sweeping across the board with treasury yields coming off, which is good for gold, said Daniel Pavilonis, senior market strategist at RJO Futures.

Attention will now be on the U.S. central bank's release at 2 p.m. EDT (1800 GMT) of its policy statement and updated quarterly economic projections. Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. EDT.

Spot silver rose more than 3% to $30.15 per ounce, platinum was up 1.9% at $969.55 and palladium gained 2.5% to $906.25.