Gold falls for first time in four weeks as persistent inflation slows rate cut bets

Gold prices posted their first weekly decline since mid-February as investors trimmed expectations of a U.S. interest rate cut after data showed consumer prices rose a bit more than expected in February.

The CPI has climbed 3.2% in the 12 months through February, after advancing 3.1% in January; the annual increase in consumer prices has slowed considerably from its 9.1% peak in June 2022, but progress has stalled in recent months.

But some analysts now believe gold has priced in any boost it might get from expectations that interest rates are falling, and policymakers would need to keep monetary policy more restrictive for longer if inflation starts to kick higher again.

Traders continue to expect rate cuts in June, although the chances have eased off to 59% from 72% before this week’s CPI data, according to the CME FedWatch tool.

Front-month Comex gold (XAGUSD:CUR) for March delivery closed -1% for the week to $2,157.30/oz, but the yellow metal has still gained 5.4% so far this month and 4.6% YTD.

Meanwhile, front-month March Comex silver (XAUUSD:CUR) ended the week +3.5% to $25.20/oz, its highest settlement value since December 1.

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Despite uncertainty over whether gold is overvalued in the short run, the consensus opinion in that the metal’s longer-term outlook is relatively rosy.

Goldman Sachs raised its forecast for 2024’s average gold price to $2,180/oz from $2,090/oz previously, also expecting a move to $2,300/oz by year-end.

ING analysts raised their gold outlook, now seeing Q4 prices averaging $2,150/oz and expecting gold will continue higher this year as safe-haven demand remains supportive, with ongoing wars and the upcoming U.S. election sparking plenty of uncertainty.

“Everything else being equal, if we see eurodollar weakness that’ll help the gold price,” World Gold Council Reade chief market strategist John Reade told The Wall Street Journal. “That’s the one thing I’d say is keeping gold firm right now.”