Softer than expected US economic news has raised the prospect the US Federal Reserve may cut rates, and that spells good news for gold bulls.

Earlier this week, data from the US Labour Department showed that US consumer prices barely rose in May with moderate inflation — and given the fresh set of numbers came amid a sluggish economic picture it puts pressure on the US central bank to cut sooner rather than later.

“We had disappointing US inflation data which reinforced market expectations that the Fed would cut interest rates, which itself is a positive for gold and related to that we see some weakness on the dollar today,” Julius Bär analyst Carsten Menke was quoted by Reuters as saying.

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The Fed is set to meet next week on the back of rising trade tensions with China, slowing growth, and a sharp decline in employment data.

Those factors mean the market has effectively priced in two rate cuts by the end of the year — but whether the Fed goes early or see how the tariffs imbroglio with China plays out is another matter entirely.

However, what’s more certain is that the swathe of potentially negative economic data is enhancing gold’s status as a ‘safe haven’ commodity.

“While the Fed might not be moving toward a ‘July’ rate cut, enough analysts in the marketplace are predicting the Fed is moving to cut and that underpins gold and silver prices above the June lows,” said analysts at Zaner Metals according to Dow Jones.

Save for Monday’s retreat, which was strong enough to leave the metal slightly lower on the week, gold has gained almost uninterruptedly for two weeks.

 

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