Gold price drifts higher as inflation remains hot

Gold prices climbed on Thursday, recouping losses from the previous session.

Spot gold was up 0.6 per cent at $2,345.56 per ounce, in early trade on Thursday. Bullion hit a record high for an eighth consecutive session until Tuesday. US gold futures also gained 0.6 per cent to $2,362.80.

“Higher-than-expected consumer prices for the third straight month this year continues to test the Fed’s inflation tolerance,” said IG market strategist Yeap Jun Rong.

Data overnight showed US inflation in March once again came in hotter than expected, decimating the chance of a rate cut in June. Core CPI advanced 0.4 per cent, above forecasts of a 0.3 per cent rise.

“Markets are now adjusting to the high-for-longer rate scenario, which translates to some near-term profit-taking in gold prices overnight,” Jun Rong said, adding that the downside seems limited into the session as market participants still perceive gold as a good hedge against geopolitical tensions.

Strong central bank buying, safe-haven inflows amid continued geopolitical risks, and demand from momentum-following funds have fuelled bullion’s 14 per cent gain so far this year.

Fed officials worried last month that progress on inflation might have stalled, making a longer period of tight monetary policy necessary, according to the minutes of the US central bank’s March 19-20 meeting.

Along with the recent hot inflation data, a strong US jobs report last week that blew past forecasts also stirred more questions on the feasibility of rate cuts this year.

Higher interest rates reduce the appeal of holding non-yielding gold.