Gold prices decreased on Monday after a one-month high following the release of May’s US inflation data on Friday, which revealed that consumer prices rose at the fastest pace in four decades.
Spot gold was down 0.9% at $1,853.80 per ounce. US gold futures also eased 0.97% to $1,857.40.
Gold, which is seen as a safe-haven asset in times of economic crises, hit its highest since May 9 earlier in the session at $1,877.05 per ounce.
The US consumer price index reached 8.6% in May — the highest reading in four decades — prompting a re-pricing of expectations in relation to what the Federal Reserve will do next.
According to Senior Analyst at ActivTrades Ricardo Evangelista, the price of the precious metal — which usually moves inversely to the USD — strengthened on Friday, despite the dollar gains that followed the data release, reflecting a drop in risk appetite in financial markets that is now strong enough to overrule the inverted correlation between the two assets.
Evangelista also told Daily News Egypt that many observers thought US inflation had peaked in April, however, that was not the case; consequently, the markets are re-pricing expectations relative to the Federal Reserve’s course of action over the coming months.
It is possible that the Federal Reserve will extend its summer action from two to three hikes, with some analysts talking about the possibility of this Wednesday’s rate decision surprising with a 75bp rise instead of the previously expected 50bp.
“Against such a background, gold will find support from the flight to safety, as investors abandon riskier assets, however, such gains will be capped by the strengthening USD and rises in treasury yields,” Evangelista concluded.
US dollar continues rising
Additionally, during Monday’s trading, the USD gained ground on other major currencies, as the markets digested surprisingly high US inflation figures.
Evangelista believes that if the Federal Reserve decided to raise hikes by 75bp, further dollar strengthening could be on the cards, especially in relation to the Yen, as the Japanese central bank remains the one with the most dovish stance among major economies.