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Gold extends decline after U.S. producer prices data

Gold prices fell on Thursday after the U.S. Federal Reserve in its most recent policy meeting scaled back to only one interest rate cut later this year, fewer than previously projected, even as inflation cooled in May.

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Gold prices extended losses to over 1% on Thursday after cooler-than-expected U.S. producer price data with analysts attributing the price drop to profit-taking.

Spot gold was down over 1% at $2,299.61 per ounce. U.S. gold futures were down 1.7% to $2,315.40.

U.S. producer prices unexpectedly fell in May amid lower energy costs, indicating that inflation subsided after surging in the first quarter.

“Gold’s inability to hold rallies on bullish data this week suggests widespread profit-taking,” said Tai Wong, a New York-based independent metals trader.

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.

Higher rates increase the opportunity cost of holding non-yielding bullion.

However, 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.

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.

“Chinese buying interest may resume at lower levels but it’s unclear where but, according to the calendar, they haven’t bought above $2300,” Wong added.

Elsewhere, spot silver fell 2.8% to $28.88 per ounce, platinum was down 1.3% at $951.30, and palladium lost 2.1% to $887.50.

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