Key Points:
- U.S. producer prices unexpectedly fell in May
- Fed fund futures show markets see two-rate cuts in 2024
- U.S. consumer prices were unexpectedly unchanged in May
Gold prices trimmed some losses on Thursday after weaker-than-expected U.S. producer inflation data raised hopes for two rate cuts in 2024, even as the Federal Reserve’s projections called for just one cut this year.
Spot gold 
GOLD was down 0.2% at $2,318.47 per ounce, as of 1318 GMT. Prices fell as low as $2303.84 before the data. U.S. gold futures GOLD were down 0.9% to $2,333.70.
U.S. producer prices unexpectedly fell in May amid lower energy costs, indicating that inflation subsided after surging in the first quarter.
“The marketplace thinks that there’s probably going to be more than one cut this year, and that’s why you’re not seeing stronger selling pressure in the gold market, and more importantly, that’s why we’re seeing bond yields drop today,” said Jim Wyckoff, senior analyst at Kitco Metals.
Benchmark U.S. 10-year Treasury yields 
US10Y dropped to their weakest levels since April 1, making non-yielding bullion relatively more attractive.
Money market pricing showed traders raised their bets to price in about 50 basis points of Fed policy easing (bps), or two-quarter-percentage cuts by the end of this year, from 40 bps before the PPI data. (FEDWATCH)
The Fed held rates steady on Wednesday and projected only one rate cut in 2024 despite some progress in inflation, as growth and unemployment lodged at levels better than the U.S. central bank considers sustainable in the long run.
A slowdown in inflation was also noted in Wednesday’s consumer price index data, which was surprisingly flat in May. That sent gold as high as 1% before it pared gains to close just about 0.3% higher after the Fed’s hawkish presser the same day.
Elsewhere, spot silver 
XAGUSD1! fell 1.5% to $29.27 per ounce, platinum 
PL1! was down 0.7% at $956.80 and palladium 
XPDUSD1! lost 0.7% to $900.10.
Insight on Gold Prices and Rate Cuts
Gold prices are sensitive to changes in interest rates, as lower interest rates tend to be supportive of gold because it reduces the opportunity cost of holding non-yielding assets like gold. The unexpected decline in U.S. producer prices has led to speculation of multiple rate cuts in 2024, which has influenced the movement of gold prices.
Additionally, the correlation between gold prices and bond yields is crucial. As bond yields drop, gold becomes a more attractive investment due to its safe-haven status and lack of yield.
