Gold prices plunged 1% Thursday, wiping out earlier gains in the market after the U.S. consumer price index was stronger than expected, raising doubts about whether the Federal Reserve (Federal Reserve/FED) would cut interest rates substantially as expected.
Spot gold fell 1% to $1,404.40 an ounce at 1730 GMT, down nearly $15 after the U.S. Consumer Price Index (CPI) was released. Data show that core inflation rose in June, the largest increase in nearly a year and a half.
U.S. gold futures fell 0.4% to close at $1,406.70 an ounce.
Gold hit a weekly high of $1,426 earlier.
The Federal Reserve last month lowered its inflation expectations for 2019 to 1.5% from 1.8% in March.
However, this may not change the Fed's expectations for interest rate cuts this month.
"We see today's inflation data - the market is starting to fall today, because the data challenge the need for further interest rate cuts," said Chris Gaffney, president of TIAA Bank Global Markets, calling the fall in gold prices a knee-jerk response.
Thursday's trend "just adjusts to the fact that gold may have risen a little too fast yesterday, but is still steadily above $1,400. It seems that gold will remain above $1,400."
Spot gold rose 1.5% Wednesday, following a pigeon speech by Federal Reserve Chairman Powell on Wednesday, confirming that the U.S. economy still faces disappointing manufacturing activity, moderate inflation and the threat of a warming trade war, and saying that the Federal Reserve is ready to "take appropriate action".
The speech put pressure on the dollar. The dollar remained essentially flat against other major currencies for the second consecutive trading day.
Federal Reserve policymakers are scheduled to hold a policy meeting on July 30-31, when investors will look for further clues to the Federal Reserve's easing of monetary policy.
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