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U.S. economic growth slows, inflation remains sticky -data
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Markets expect 25 bps Fed rate hike next week
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Higher rates can worsen banking crisis -analyst
(Updates prices)
By Deep Kaushik Vakil
April 27 (Reuters) - Gold reversed course and dropped on
Thursday, as the dollar gained after weaker U.S. economic
readings failed to upend expectations of another interest rate
hike by the Federal Reserve next week amid stubborn inflation.
Spot gold was down 0.1% at $1,988.08 per ounce by
2:16 p.m. EDT (1816 GMT), while U.S. gold futures settled
up 0.2% at $1,999.
Data showed the U.S. gross domestic product grew
slower-than-expected last quarter, but markets focused on the
above-forecast inflation number.
That drove investors to the dollar, making gold more
expensive for those holding other currencies. Although gold is a customary safe haven during economic
uncertainties, stubborn inflation could prolong the Fed's
monetary tightening, dimming appeal for zero-yield bullion.
Markets saw an 87% chance of the U.S. Fed raising rates by
25 basis points on May 2-3. Investors now await the core
Personal Consumption Expenditures (PCE) index data for March due
on Friday.
"If we do get a hotter number on that PCE tomorrow, that's
going to be bearish for gold from a perspective of global demand
for the metals markets", given prospects of further rate hikes,
said Jim Wyckoff, senior analyst at Kitco Metals.
Earlier in the day and in previous sessions, gold found
support from concerns about the U.S. banking sector, with U.S.
government officials so far unwilling to intervene in the First
Republic Bank rescue process.
Also on the radar were deliberations surrounding the U.S.
debt ceiling, lifting Treasury yields. Although higher interest rates work against gold as it does
not provide any yield, they can work in bullion's favour because
they raise the chance of another banking crisis, said
independent analyst Ross Norman.
Bullion had scaled more than a year's peak at $2,048.71 in
mid-April as the banking crisis unfolded.
Silver rose 0.1% to $24.91 an ounce, platinum shed 0.9% to $1,079.52 and palladium was down 1.2% at
$1,494.07.
(Reporting by Deep Vakil and Ashitha Shivaprasad in Bengaluru;
Editing by David Goodman, Sohini Goswami, Alexander Smith and
Shilpi Majumdar)
