Gold prices rose on Friday, however, they were still on track for a second consecutive weekly decline due to hot inflation data which cooled hopes of early rate cuts by the Federal Reserve. Spot gold increased by 0.4% to $2,012.86 per ounce, but has lost 0.6% for the week so far, while U.S. gold futures settled 0.5% higher at $2024.1.
The dollar index was up for the week so far, and the benchmark 10-year Treasury yield extended gains, making gold less attractive. This is due to the fact that the strong U.S. economic growth is indicating higher inflation, which is considered to be a headwind for gold.
Even though gold is often considered a hedge against inflation, higher interest rates make non-yielding bullion less attractive. As a result, analysts are predicting that gold prices may further fall to the $1,960s level.
Traders have also adjusted their expectations of a U.S. interest rate cut from March to June, with markets currently pricing a 73% chance of a cut in June, according to the CME Fed Watch Tool. Fed Atlanta President Raphael Bostic noted that more time was needed to weigh the prospect of a rate cut.
On the physical front, gold premiums in India rose to more than four-month highs this week as demand picked up, particularly with jewellers stocking up for the wedding season. In addition to gold, spot platinum and silver also experienced price movements, with palladium rising 10.4% for the week.
Additional Insight: The hot inflation data in the U.S. has shifted expectations of rate cuts, impacting the attractiveness of gold as an investment. With the economy showing robust growth, analysts are forecasting further declines in gold prices in the near future. Furthermore, the rise in gold premiums in India indicates potential strength in physical demand, particularly during traditional wedding seasons. This dynamic in physical demand could provide some support for gold prices in the coming months.
