Gold Holds Ground as Slowing Inflation Boosts Fed Rate Cut Bets

Gold prices remained steady on Monday following the release of data showing a decrease in US inflation in May, which raised hopes for potential interest rate cuts by the Federal Reserve later this year. 

As of 0716 GMT, spot gold was almost unchanged at $2,325.49 per ounce after experiencing a more than 4% increase in the second quarter, according to Reuters. US gold futures also saw a slight 0.2% decrease to $2,334.80.

The data from Friday revealed that the US personal consumption expenditures index rose by 2.6% in the 12 months leading up to May, slightly lower than the 2.7% increase in April, while inflation figures for the month were in line with economists' expectations.

IG market strategist Yeap Jun Rong commented, "The latest US inflation data remain fresh on investors' mind, with the data coming in line with consensus and generally did little to sway current market rate expectations for the Fed's easing process to kickstart in September."

However, there are concerns that failure to defend the $2,280 level could potentially lead to a decline in gold prices towards $2,200.

The market is currently anticipating a 64% likelihood of the Fed cutting interest rates in September, which has remained unchanged from before the data release, along with another potential cut in December.

Lower interest rates typically diminish the opportunity cost of holding non-yielding bullion.

Investor attention is now turning to Federal Reserve Chair Jerome Powell's upcoming remarks on Tuesday, followed by the release of minutes from the Fed's latest policy meeting on Wednesday and US labor market data later in the week.

Additionally, ANZ analysts mentioned in a note that despite a slowdown in central bank purchases in recent months, they believe that central banks in emerging markets will continue to diversify their reserves into gold.

In other precious metal news, spot silver remained unchanged at $29.12, platinum saw a 0.3% increase to $996.12, and palladium gained 0.6% at $978.46.

Furthermore, a private sector survey revealed that China's manufacturing activity grew at its fastest pace in over three years, in contrast to an official PMI released on Sunday indicating a decline in manufacturing activity.