Gold Dips but Heads for Weekly Gain on Fed Rate-Cut Bets

Gold prices declined on Friday, though they remained on track for a third consecutive weekly increase. This trend follows lower-than-expected U.S. inflation data, which has fueled optimism that the Federal Reserve may begin reducing interest rates in September.

Spot gold dipped by 0.2% to $2,408.70 per ounce as of 0148 GMT, after a 2% surge on Thursday. Meanwhile, U.S. gold futures dropped 0.3% to $2,413.90. Check MCX Gold Rate Today Live

Thursday's data revealed an unexpected decrease in U.S. consumer prices, with the annual increase being the smallest in a year. This development brings the Fed closer to potentially cutting interest rates.

"The inflation outlook and interest rate scenario have turned favorable for gold this week. As we approach a lower interest rate environment, the conditions could be ideal for gold to achieve new record highs before the year ends," stated Tim Waterer, KCM Trade's chief market analyst.

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According to the CME FedWatch Tool, the probability of a September U.S. rate cut has risen to 93%, up from 70% before the data release. Lower interest rates reduce the opportunity cost of holding non-yielding gold.

San Francisco Fed Bank President Mary Daly mentioned on Thursday that she anticipates further reductions in both price pressures and the labor market, which could justify interest rate cuts. Similarly, Chicago Fed Bank President Austan Goolsbee remarked that the U.S. economy appears to be on track to achieving 2% inflation.

Investors are now looking forward to the U.S. producer price index (PPI) reading, scheduled for release at 1230 GMT. "The PPI figures could be crucial in determining whether gold finishes the week above or below the $2,400 level," Waterer noted.

Spot silver decreased by 0.8% to $31.20 per ounce after hitting a more than one-month high on Thursday. Platinum fell by 0.2% to $1,001.90, and palladium dropped by 1% to $984.63. Both metals are poised for weekly declines. Check MCX Silver Rate Today