Gold gains as investors focus on Fed rate cuts and inflation data

By Anushree Ashish Mukherjee

(Reuters) – Gold prices rose on Thursday, driven by strong expectations of a U.S. Federal Reserve rate cut in September, with investors focusing on U.S. inflation data for further insight into the potential extent of the cut.

Spot gold rose 0.8% to $2,521.00 an ounce by 12:15 p.m. ET (4:15 p.m. GMT). U.S. gold futures rose 0.7% to $2,554.30.

“The market certainly seems to be expecting a rate cut, and now it's just a question of magnitude – how big will the Fed cut rates,” said Everett Millman, chief market analyst at Gainesville Coins.

“My expectation right now is that the gold market will remain sideways at least until the next Fed meeting, but there appears to be a strong base of support due to geopolitics.”

The Israeli military said its troops had killed five Palestinian militants hiding in a mosque in the West Bank city of Tulkarm.

Gold, which does not itself pay interest, is used as a safe investment in times of economic and geopolitical uncertainty.

Earlier data showed that initial jobless claims in the US fell last week. The Labor Department added that the unemployment rate was likely to remain high in August. Fed Chairman Jerome Powell hinted last Friday that interest rate cuts were imminent, reflecting concerns about the labor market.

According to the CME FedWatch tool, traders see a 65.5 percent chance of a 25 basis point (bp) rate cut in September and about a 34.5 percent chance of a deeper cut of 50 bp.

Investors are now turning their attention to Friday's personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure.

If the inflation report is positive, it would be another argument for a rate cut in September and would drive up the price of gold, said Julia Khandoshko, CEO of European broker Mind Money.

The spot price of silver rose 1.2% to $29.47. Platinum gained 1.6% to $944.65 and palladium rose 3.3% to $977.00.

(Reporting by Anushree Mukherjee and Ashitha Shivaprasad in Bengaluru; Editing by Krishna Chandra Eluri)