Gold Prices Rebound from Lows as US Inflation Data Eases Rate Hike Concerns

US Inflation Data Boosts Gold and Silver Prices

On Thursday, May 28, the prices of gold and silver recovered from their early losses after the release of US inflation data, which showed a slower-than-estimated rise in April. The data strengthened expectations that the Federal Reserve may prefer to keep interest rates unchanged rather than pursue further monetary tightening.

According to the Comex, gold rebounded by $107 per ounce to reach a day's high of $4,502, while silver futures recovered $3.30 to touch an intraday high of $75.23. Earlier in the session, silver had slipped to its lowest level since April 30, while gold fell to levels last seen on March 27.

The US personal consumption expenditure (PCE) price index rose 3.8% year-on-year in April, with a monthly increase of 0.4% in April after surging 0.7% in March. Excluding food and energy, core PCE prices rose 0.2% for the month and 3.3% annually, compared to market estimates of 0.3% and 3.3%, respectively.

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The US Federal Reserve uses the PCE index as its preferred gauge for inflation and monetary policy decisions. Policymakers generally consider the core measure a better indicator of long-term inflation trends, as it excludes volatile food and energy prices.

Meanwhile, tensions in the Middle East resurfaced following fresh attacks, reducing hopes of a near-term peace agreement in the region. Tehran reportedly targeted a US airbase on Thursday after Washington launched fresh strikes on Iran. Iran and the US accused each other of violating a fragile ceasefire in their three-month conflict.

Earlier this week, both nations had signalled a willingness to end the three-month-long war, but the latest escalation put those hopes to the test, triggering a rebound in crude oil prices. A major sticking point in the negotiations remains Tehran's insistence on maintaining control over the Strait of Hormuz and preserving its nuclear programme.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Higher energy prices resulting from disruptions around the Strait of Hormuz are likely to keep inflation elevated and force central banks to maintain higher interest rates for longer, rather than deliver the rate cuts many investors had expected before the conflict with Iran began.

In the bond market, the yield on the 10-year US Treasury note, the main benchmark for mortgages, auto loans, and credit card debt, was flat on the day at 4.479%.

Tracking the rebound in the international market, the near-month gold futures contract on MCX rebounded by ₹873 per 10 grams to the day's high of ₹1,56,500. If the momentum sustains through the close, the metal will snap its two-day losing streak. So far this week, gold has declined 1.9%.

Silver futures also staged a strong recovery, gaining ₹5,320 per kilogram from the day's low to touch ₹2,66,320. For the week, silver is down 2.3%, and if it closes lower, it will snap a four-week winning streak during which the metal had surged by ₹27,210. Along the way, silver had crossed the ₹3 lakh mark for the first time since January.