Gold turns lower as U.S. yields rise after inflation data but higher for the month

Gold prices fell Friday, dipping below $2,500/oz, as Treasury yields and the dollar pushed higher after U.S. inflation data matched expectations, reinforcing the likelihood that interest rate cuts will be conducted at a measured pace.

Data from the Commerce Department showed the personal consumption expenditures price index, considered the Federal Reserve’s favorite inflation gauge, rose 0.2% last month, matching economists’ forecasts.

The data supports the Fed’s intentions to begin easing monetary policy as soon as the upcoming September meeting, with most market watchers expecting the size of the first rate cut at a modest 25 basis points.

Investors will now look ahead to the U.S. non-farm payroll report due next week, “which will solidify whether or not we have a 50- or 25-basis point interest rate cut at the September meeting,” Blue Line Futures chief market strategist Phillip Streible said, according to Reuters.

Front-month Comex gold (XAUUSD:CUR) for September delivery settled -1.2% to $2,493.80/oz and finished 0.7% lower for the week, but the front-month gained 2.7% for the month, its sixth straight monthly gain; gold is up 21% YTD and off slightly from yesterday’s all-time settlement high of $2,525.70.

Front-month September silver (XAGUSD:CUR) closed -2.8% on Friday, while shedding 3.6% for the week but just 0.1% for the month, but still its third consecutive monthly loss; silver is up 20% YTD.

ETFs: (NYSEARCA:GLD), (NYSEARCA:GDX), (GDXJ), (IAU), (NUGT), (PHYS), (GLDM), (AAAU), (SGOL), (BAR), (OUNZ), (SLV), (PSLV), (SIVR), (SIL), (SILJ)

TD Securities strategist Daniel Ghali said he anticipates near-term downside for gold as “positioning cues are flashing red on several fronts,” with macro funds positions particularly extreme, as reported by Bloomberg.

“Systematic trend followers are effectively max-long,” according to Ghali. “We also think that Shanghai positioning is near its record highs… despite the fact that physical demand in China has been fairly weak and inflows from Chinese gold ETFs as well.”

A move lower toward $2,430/oz could trigger liquidation, Ghali said.