Gold prices fell heading into a three day weekend after the dollar strengthened on better than expected US core inflation data.
The core inflation rate rose by more than expected in April according to government data. The inflation rate for the month was 0.3%- the highest monthly growth since January 2013.
With inflation approaching the Federal Reserve’s target, the Federal Reserve Chairwoman, Janet Yellen remarked that she expected the Fed to hike the interest rates this year if the economy meets her forecasts.
Higher interest rates are bearish for non-interest bearing commodities like gold that depend on price changes for profit.
“Even though it was not a big jump in inflation, it was enough to bring back the rate anxiety,” Frank Lesh, a trader at FuturePath Trading LLC in Chicago, told Bloomberg in a telephone interview.
“You saw an immediate reaction in dollar, and the strength was a headwind for gold.”
Gold futures had edged higher in morning trading after the dollar fell against a basket of other currencies on speculation that the inflation data would indicate weakness in the economy pushing back the monetary tightening to later this year or early 2016.
Gold for immediate delivery ended mostly flat at the end of trading after trading modestly higher before the inflation data.
Gold for June delivery declined by 10 cents settle at $1,201.4 a troy ounce on the Comex division of the New York Mercantile Exchange.
Prices of the precious metal, based on most active contracts, fell by 1.7% this week after two straight weeks of advances.
“We see a battle in the gold market,” Taki Tsaklanos, head of research at Secular Investor, told Market Watch.
“Gold on Friday benefited from a better than expected CPI reading for April in the U.S., while it saw pressure from the U.S. dollar and Yellen’s determination to raise interest rates later this year,” he said.
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