World gold prices turned down in the afternoon trading session of July 15 as investors re-evaluated the interest rate outlook of the US Federal Reserve (Fed) amid concerns that rising oil prices could increase inflationary pressure.
As of 3 pm Vietnam time, spot gold price decreased by 1.01%, to 4,021.85 USD/ounce. Meanwhile, gold futures for August delivery in the US decreased by 0.94%, to 4,031.30 USD/ounce.
The correction took place after gold prices jumped to 4,100.49 USD/ounce in the previous session, the highest level in nearly two weeks, thanks to the US consumer price index (CPI) report in June being lower than expected. This data shows that inflationary pressure in the US cooled down, thereby causing the market to adjust expectations about the Fed's interest rate roadmap.
However, the continued increase in oil prices for the third consecutive session has raised concerns that inflationary pressure may increase again. This makes the market more cautious about the possibility that the Fed will maintain a high interest rate level for a long time, thereby putting pressure on gold.
Although gold is often seen as an inflation hedging tool, a high interest rate environment reduces the attractiveness of precious metals because gold does not yield yields.
Fed officials believe that the June inflation report is a positive signal, but more economic data is still needed to confirm that price pressure has actually cooled down and is sufficient basis to adjust monetary policy orientation.
The market is currently focusing its attention on the US producer price index (PPI) for June, expected to be released on the same day, in order to find more signals about the inflation trend and the prospects of Fed interest rate management in the coming months.
Although interest rate hikes expectations have cooled down after the CPI report, the market has not yet ruled out the possibility that the Fed will continue to tighten policy if inflationary pressure returns. According to CME FedWatch, the probability of the Fed raising interest rates at the September meeting has decreased to about 58%, from 76% before the CPI data was released. However, the market still assesses about 80% of the possibility that the Fed will have an interest rate hike at the December meeting.
In other precious metals, spot silver prices fell 0.86% to 58.22 USD/ounce. Platinum prices fell 0.04% to 1,632.03 USD/ounce, while palladium slightly increased 0.56% to 1,315.00 USD/ounce.
