Gold Rises as Tame U.S. Inflation Strengthens Case for Rate Cut

Gold Rises as Tame U.S. Inflation Strengthens Case for Rate Cut

Gold Rises as Tame U.S. Inflation Strengthens Case for Rate Cut
Wednesday, June 12, 2019 - 18:41

By Barani Krishnan - The Federal Reserve is feeling the heat from inflation, or its lack thereof. And gold bulls believe it’s just another little thing that could push the central bank over the edge on monetary easing.

Bullion and futures of gold rose in Wednesday’s trading after data showing that U.S. consumer prices barely rose in May, increasing pressure on the Federal Reserve to cut interest rates.

Spot gold, reflective of trades in bullion, traded at $1,332.98 per ounce by 2:15PM ET (18:15 GMT), up $6.16, or 0.5%, on the day.

Gold futures for August delivery, traded on the Comex division of the New York Mercantile Exchange, settled up $5.60, or 0.4%, at $1,336.80 per ounce.

Lower interest rates make safe-haven assets such as gold, which does not yield interest, more attractive while weighing on the dollar. The U.S. currency was trading largely unchanged against a basket of currencies on Wednesday.

Gold has also been boosted lately by expectations that the Fed might have to cut interest rates after May’s less-than-stellar U.S. jobs data and on continued pressure from President Donald Trump, who wants an easing so that the economy can perform better under his watch. Trump has criticized the Fed for raising rates during his term and for reducing its $3.8 trillion asset portfolio, which he says has harmed the economy and put the U.S. at a competitive disadvantage.

Gold pundits think gold could pierce $1,400 if the Fed issues a dovish policy statement after its June 19 monthly meeting. Spot gold scaled a April 2018 high of $1,348.34 on Friday.

Worries over the U.S.-China trade war have also raised investors’ interest in gold as a hedge against a possible recession.

Trump threatened on Tuesday to further raise tariffs on Chinese imports if he does not make progress in trade talks with Chinese leader Xi Jinping at the G20 summit later this month. Beijing vowed a tough response if the United States insists on escalating trade tensions amid ongoing negotiations.

© Reuters.

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