Tuesday’s decline in gold prices was caused by investors taking gains following a recent surge and pressure from the less likely possibility of rate reduction by the Federal Reserve. The market was also waiting for important U.S. inflation data that is expected later this week.

After climbing 0.7% on Monday, spot gold dipped 0.3% to $2,343.99 an ounce at 0940 GMT.

Despite dropping below its 21-day moving average, which is presently at $2,348; nonetheless, with May’s 2.5% increase, the bullion was still expected to rise for a fourth straight month. On May 20, the spot price reached a record high of $2,449.89.

“Gold, silver and PGMs (platinum group metals) are subject to some near-term profit-taking after rallies recently,” said Amelia Xiao Fu, head of commodity market strategy at Bank of China International.

Although keeping non-yielding gold has a greater opportunity cost as central bank rates rise, bullion is nonetheless commonly viewed as an inflation hedge.

The Federal Reserve’s meeting minutes from last week indicated that the policy reaction would be to keep the benchmark policy rate at its present level for the time being, but they also included conversations about potential raises in the future.

According to the CME FedWatch Tool, traders are presently pricing in a 64% likelihood of a rate drop by November. They then open a new tab and watch for the Fed’s preferred inflation barometer, the core personal consumption expenditures price index (PCE), which is due on Friday.

“Nevertheless, gold prices are likely to remain fairly supported by buying-on-dips demand and central bank diversification,” Xiao Fu added.

Since two years ago, central banks throughout the world have increased their demand for gold as a means of diversifying their foreign exchange holdings.

The price of $2,300 in the Asian gold market may serve as a threshold for some tangible purchasing interest.

Spot silver increased 4.4% on Monday before falling 0.5% to $31.52. May will see a 20% increase in the metal, which would be the highest monthly rise in over four years.

Although platinum was down 0.5% at $1,048.85, it was expected to grow by 12% in May, the most since November 2020. Palladium saw a 1.1% decrease to $978.24.

(Adapted from Investing ,.com)

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