Despite this decline, the precious metal is trading near the record high it hit last month. Year-to-date, gold prices have risen nearly 20 percent as optimism grows over monetary easing by the US Federal Reserve.
However, a significant Fed rate cut in September is probably out of the question after new data from the U.S. Labor Department showed higher U.S. inflation for July.
The U.S. consumer price index rose 0.2 percent last month after falling 0.1 percent in June. In the 12 months through July, the consumer price index rose 2.9 percent after rising 3 percent in June, the Bureau of Labor Statistics said.
“Expectations have now shifted back towards a cut of just 25 basis points, which could take some of the momentum out of the gold market,” said Phillip Streible, chief market strategist at Blue Line Futures, in a Reuters Note.
“A rate cut in September is a surefire bet; right now the data suggests the Fed will start at 25 basis points, which would be a disappointment for a market that likes to overshoot,” added Tai Wong, an independent metals trader based in New York.
According to the CME FedWatch tool, markets now estimate a 41 percent chance that the Fed will cut interest rates by 50 basis points in September. Before the release of the US CPI data, the probability was 50 percent.
Atlanta Fed President Raphael Bostic said Tuesday he wanted to see “some more data” before he was willing to support a rate cut.
However, other factors such as central banks and safe-haven demand could continue to support gold. “We are still in an environment of significantly increased geopolitical tensions, which always benefits gold,” said Ben Hoff, head of commodity strategy at Société Générale.
(With files from Reuters)
