Gold prices climbed on Wednesday, bolstered by expectations that the Federal Reserve may cut interest rates sooner than anticipated, following softer-than-expected US inflation data for May. Platinum also surged, extending its gains for the year amid tightening supply.
Spot gold rose by 0.3%, reaching $3,334.78 per ounce by late morning in New York, after inflation data showed that underlying US inflation increased less than expected for the fourth consecutive month. This suggests that businesses are finding ways to absorb some of the higher costs from tariffs, limiting the impact on consumers. The dollar and bond yields slipped following the report, which lifted gold prices by as much as 1.1% before they pared some of those gains. Bullion tends to benefit in a lower interest rate environment, as it does not pay interest.
According to Ole Hansen, head of commodities strategy at Saxo Bank A/S, the inflation data strengthened the case for a potential Fed rate cut, which could come sooner than the October timeline currently priced in by markets. “The benign inflation reading is lifting expectations for a rate cut, which is supportive for gold,” Hansen noted. However, he cautioned that gold prices are still trading within recent ranges and would need further deterioration in economic data to push beyond current levels.
Gold Benefits from Trade Tensions and Economic Uncertainty
Gold’s gains are also driven by ongoing uncertainties over global trade tensions, which have increased the metal’s appeal as a safe-haven asset. The precious metal has gained nearly 27% year-to-date, with trade concerns, including the economic impacts of President Trump’s tariff policies, continuing to support its price. Although gold’s rally has cooled in recent weeks, the metal has maintained its position near record highs, reached in April.
Despite President Trump’s recent announcement that a trade framework with China has been completed, including agreements on rare earth supplies and access for Chinese students to US universities, gold has held its ground, reflecting ongoing concerns about the economic fallout from trade disputes.
Platinum Soars Amid Tightening Supply and Strong Demand
Meanwhile, platinum prices surged by as much as 5.2%, reaching $1,283.79 per ounce, continuing a remarkable rally that has seen the white metal gain more than 40% this year. Platinum, used in jewelry, autocatalysts, and various industrial applications, has surged as supply tightens and demand increases, particularly from China, where consumers seek a cheaper alternative to gold jewelry.
The price gains come amid expectations that platinum will experience another year of supply deficits. A significant outflow of platinum to the US in early 2025, driven by concerns over potential tariffs, has further squeezed availability in key trading hubs like Zurich and London. The implied cost of borrowing platinum for one month has surged to the highest levels in two decades, reaching an annualized rate of 15%. Forward prices for platinum are trading at a steep discount to spot prices, both signs of tightness in the market.
George Heppel, an analyst at BMO Capital Markets, noted, “The investor space is starting to buy into the platinum tightness now,” reflecting growing confidence in the metal’s price trajectory.
Challenges in Platinum Production
Platinum production has also been impacted by disruptions in South Africa, the world’s largest producer. Heavy rains and other operational challenges have hindered output this year, further supporting the price rally. Major platinum producers like Anglo American Plc’s spinoff Valterra Platinum Ltd., Impala Platinum Holdings Ltd., and Sibanye Stillwater Ltd. have benefited from the rising prices, although they continue to face pressure from the growing adoption of electric vehicles, which do not require platinum or its sister metals, palladium and rhodium.
Despite the bullish outlook, Heppel cautioned that “platinum is a sunset market,” referring to its declining role as electric vehicles replace traditional combustion engines, which require platinum in catalytic converters.
As of 10:35 a.m. in New York, the Bloomberg Dollar Spot Index had fallen by 0.2%, while silver prices declined and palladium prices rose.
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