Gold prices retreated on Tuesday as investors took profits following a recent surge and amid reduced expectations of Federal Reserve rate cuts, while awaiting crucial U.S. inflation data scheduled for later this week.
At 0940 GMT, spot gold declined by 0.3% to $2,343.99 per ounce, following a 0.7% increase on Monday.
Despite slipping below its 21-day moving average, currently standing at $2,348, gold was poised for its fourth consecutive month of growth, with a 2.5% gain in May. The spot price had reached a record high of $2,449.89 on May 20.
“Gold, silver, and PGMs (platinum group metals) are subject to some near-term profit-taking after recent rallies,” noted Amelia Xiao Fu, head of commodity market strategy at Bank of China International.
While gold is commonly viewed as an inflation hedge, higher central bank rates elevate the opportunity cost of holding non-yielding gold.
The release of Fed meeting minutes last week indicated that, for the time being, the policy response would involve maintaining the benchmark policy rate at its current level, but discussions on possible further hikes were reflected.
Currently, traders price in about a 64% chance of a rate cut by November, according to the CME FedWatch Tool, as they await the core personal consumption expenditures price index (PCE), the Fed’s preferred inflation gauge, scheduled for Friday.
“Nevertheless, gold prices are likely to remain fairly supported by buying-on-dips demand and central bank diversification,” added Xiao Fu.
Central banks globally have shown elevated demand for gold over the past two years as they diversify their foreign currency reserves.
In the Asian gold market, the $2,300 price level could attract some physical buying interest.
Spot silver declined by 0.5% to $31.52 after a 4.4% surge on Monday. The metal was set for a 20% growth in May, its largest monthly gain in almost four years.
Platinum dropped by 0.5% to $1,048.85 but was on track for a 12% gain in May, its highest monthly rise since November 2020. Palladium decreased by 1.1% to $978.24.
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