Gold falls nearly 2% as traders eye U.S. consumer inflation data for rate cues

SEATTLE (Scrap Monster): Gold prices on Tuesday fell nearly 2% as investors expressed caution a day ahead of key U.S. consumer inflation data that could significantly impact interest rate expectations. Risk sentiment was also dented after President Donald Trump said Iran had shot down a U.S. helicopter and vowed a response.

At 16:55 ET (20:55 GMT), spot gold was down 1.6% to $4,260.20/oz, while gold futures dipped 1.8% to $4,284.09/oz. In the previous session, the yellow metal fell to its lowest since late March, but pared losses after to end largely flat.

U.S. CPI report to give cues on monetary policy

Precious metal market participants were on edge as they awaited Wednesday’s May U.S. consumer price index (CPI) report and Thursday’s producer price index (PPI) report.

With labor market data last week showing strength, and inflation likely to have been boosted due to surging oil prices from the Iran war, investors believe the Fed will keep interest rates on hold this year or even hike them. That belief has also led to a bond sell-off and surging Treasury yields. Gold tends to underperform in higher rate environments.

"Last week’s U.S. employment report bolstered our view that the cyclical lift in global business spending is broadening to hiring –– a development that has two major implications for the outlook. First, it reduces downside risks to growth, in part by helping to cushion the squeeze from rising energy prices on household purchasing power," JPMorgan analysts led by Nora Szentivanyi said. 

"We look for another leg higher in this week’s US May inflation report, with headline CPI rising 0.58%m/m (4.3%oya) and core up 0.27% (2.9%oya). This result would send the three-month annualized CPI rate to 8.7%––its highest since 2022," they said.

"The second implication is that a tightening in labor markets lies ahead. The May unemployment rate remained at 4.3%, but we believe sustained job gains at a 100k pace or fimer will gradually tighten the labor market. Our forecast for the unemployment rate to end this year at 4.1% should combine with sticky 3% core inflation to produce a Fed tightening, currently anticipated for next year," the analysts said. 

"Higher U.S. fuel prices should again be the main driver of the CPI gain, but the decline in gasoline prices in recent weeks, if sustained, points to a reversal of the energy price impulse in June," they added. 

Trump says U.S. to respond after Iran shoots down helicopter 

Turning to the Middle East, hopes for de-escalation in the region that had carried over from the prior session took a big hit on Tuesday after Trump said Iran had shot down a U.S. Apache helicopter while it was patrolling over the Strait of Hormuz.

"There were two pilots involved, both are safe and uninjured. Nevertheless, the United States must, of necessity, respond to this attack," the president said on his Truth Social service.

U.S. Central Command had earlier said an Apache helicopter had gone down near the coast of Oman and that its crew of two had been safely rescued. CENTCOM had added that the cause of the incident was under investigation.

The promise of a U.S. response dented expectations that Washington and Tehran were close to negotiating a peace deal. Diplomatic efforts had appeared to take a positive turn after Iran and Israel on Monday announced that they would halt strikes against each other over Israel’s recent military operations in Lebanon against Iran-backed Hezbollah.

Courtesy: www.investing.com