Gold steadies as tapering concerns ease

by Jonathan Adams
Gold steadies

Spot gold inched down 0.1% to $1,749.62 per ounce, while U.S. gold futures dropped 0.1% at $1,751.00

Prices of gold stabilised on Thursday after rising more than 1% in the previous session, as concerns about an early tapering in economic support eased after data showed U.S. consumer price inflation (CPI) cooled in July.

Spot gold inched down 0.1% to $1,749.62 per ounce by 0329 GMT, having recorded it biggest one-day percentage gain since May 6 on Wednesday. U.S. gold futures dropped 0.1% at $1,751.00.

Data showed on Wednesday that U.S. consumer price increases slowed in July, although they stayed at a 13-year high on a yearly basis, underpinning the Federal Reserve’s argument that inflationary pressures are likely to be transitory.

There is a slightly lower risk that the Fed will have to tighten policy aggressively to cap potentially runaway inflation, said Kyle Rhoda, an analyst at IG Market. However, the downward trend in gold is likely to persist, Rhoda added.

Meanwhile, a growing number of U.S. central bank officials have been discussing how and when they should begin to trim the massive pandemic-era asset purchases.

While gold is viewed as a hedge against higher inflation, it is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar.

It is perfectly possible that gold has heavily factored in tapering as inevitable. What may be a negative going forward might be a fast-paced tapering, James Steel, chief precious metals analyst at HSBC wrote in a note.

Gold is likely to hold or build a base to go modestly higher, Steel added.

Silver dropped 0.5% to $23.40 per ounce. Platinum eased 0.2%, to $1,014.99 and palladium was declined 0.1% to $2,633.19.

This article is for information purposes only.
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