Gold prices dip as strong inflation, labor data fuel Fed fears

Investing.com -- Gold prices fell slightly on Friday, extending losses into a third straight session as stronger-than-expected U.S. inflation and labor market data saw fears of more Federal Reserve rate hikes come back into focus.

The yellow metal was now set to end the week well below $2,000 after failing to retake the level in recent sessions.

Gold sank on Thursday, while Treasury yields surged after data showed that the personal consumption expenditures prices read much hotter than expected in the first quarter of 2023.

Initial jobless claims also unexpectedly fell over the past week, separate data showed, indicating that the labor market was running strong despite the Fed’s expectations for some cooling.

The data fueled concerns that inflation will remain sticky in the coming months and attract more policy tightening by the Fed. Such a scenario bodes poorly for non-yielding assets such as gold.

Spot gold fell 0.1% to $1,985.79 an ounce, while gold futures fell 0.2% to $1,994.85 an ounce by 20:58 ET (00:58 GMT). But the yellow metal was still set for mild gains this week, snapping two straight weeks of losses.

Softer-than-expected first quarter U.S. GDP data showed that the economy was cooling under high interest rates and inflation. But given that growth was still in positive territory, the Fed may still have enough headroom to hike rates, considering that the bank signaled it was willing to risk a mild recession to curb high inflation.

The central bank is widely expected to raise interest rates by 25 basis points when it meets next week, with any signals on the future of monetary policy being closely watched.

But gold may see increased demand later this year, especially if the U.S. slips into recession and when the Fed pauses its rate hike cycle. The yellow metal had rallied close to record highs earlier in April on this notion, and was still set to close the month nearly 1% higher.

Other precious metals drifted lower on Friday, with platinum futures down 0.1%, while silver fell 0.3%.

Among industrial metals, copper prices weakened on Friday and were set for steep losses this week as fears of slowing economic growth weighed.

Copper futures fell 0.1% to $3.8898 a pound, and were trading down 2.3% for the week.

In addition to the weak U.S. GDP reading, Chinese data showed that industrial profits shrank more than expected in the first quarter, furthering the notion of an uneven economic recovery in the world’s largest copper importer.