Gold edged higher ahead of the US inflation report that the market watches for clues on the Fed’s next move, while investors also weighed the potential threat to the central bank’s independence.
Key points:
– Friday’s personal consumption expenditures price index, the Fed’s preferred inflation gauge, is expected to show the fastest year-over-year gain in five months, a reading that could constrain the Fed’s ability to ease policy. Data released a day earlier showed the economy growing faster than previously estimated.
– Markets still price in a greater than 80% chance of a rate cut next month, with bets growing for a move in September after Fed Chair Jerome Powell opened the door to cutting, though uncertainty remains about how inflation and the labor market will evolve as tariffs from the Trump administration feed through. Lower borrowing costs tend to support gold, which doesn’t pay interest.
– In another development, Fed Governor Lisa Cook sued President Donald Trump over his attempt to fire her amid allegations of mortgage fraud, sparking a high-stakes dispute over the independence of the US central bank. If Trump wins removal, it could give him a four-person majority on the seven-member board, prompting fears that a less independent Fed could erode investor confidence and spur faster inflation. Such a scenario would likely bolster gold’s appeal as a haven.
– Gold has mostly traded in a range since a record run above $3,500 an ounce in April, with traders waiting for new catalysts. Trade tensions, geopolitical frictions, ETF inflows, and central-bank diversification away from the dollar have all supported prices.
Market specifics:
– Gold was up 0.6% at $3,416.85 an ounce as of 12:31 p.m. in New York.
– The Bloomberg Dollar Spot Index fell about 0.3%.
– Silver, platinum and palladium all gained.
Overall takeaway:
– The gold market remains sensitive to inflation data and potential Fed policy shifts, while political developments around Fed independence add an extra layer of uncertainty. If inflation cools or the Fed signals a clearer path to easing, gold could face a favorable environment; conversely, signs of stronger inflation or a more favorable stance for policy normalization could temper gold’s gains.
Additional notes:
– If you’re building a market view, monitor the PCE data release closely, any official commentary from Powell on rate trajectories, and the ongoing legal dispute over Fed independence, as these elements could influence gold’s direction in the near term.
– Positive spin: Gold remains a key hedge and a barometer of policy risk. With ongoing questions about inflation, policy timing, and central-bank autonomy, gold offers a potential cushion for portfolios seeking stability amid uncertainty.