Gold eased in mid-August, weighed by a firmer dollar after resilient U.S. price data and a fall in jobless claims that eroded U.S. rate cut expectations.

Gold was down 0.57 percent to 3,352.21 per ounce on August 15.

U.S. Inflation Data Dampens Rate Cut Hopes

The stronger than expected U.S. price data scaled back expectations by some market analysts who had forecast a half-point cut in U.S. interest rates by the Federal Reserve (central bank) in September.

“The Producer Price Index release delivered a sobering reminder that inflationary pressures remain persistent at the wholesale level, creating ripple effects across commodity markets and challenging the prevailing narrative of imminent rate cuts,” wrote Kitco News analyst Gary Wagner.

Producer Price Index Surges in July

The U.S. Bureau of Labour Statistics reported that the Producer Price Index for final demand surged 0.9 percent in July on a seasonally adjusted basis, a sharp acceleration from June’s flat reading and May’s 0.4 percent increase.

Many market participants now see a 0.25 percentage point cut by the Fed in September, followed by a possible further cut in October.

Tariffs Add Pressure to Inflation

A sense that U.S. inflation is proving resilient, in part due to the impact of tariffs, is limiting prospects for downside in U.S. rates, analysts say.

U.S. tariffs can make imported goods more expensive to U.S. consumers.

An underlying measure of inflation excluding food and energy increased more quickly than expected, up 3.1 percent year-on-year, compared with expectations for a rate of 3 percent, reflecting the increased cost of some goods and services, as tariffs started to take effect.

Dollar Strength Weighs on Gold

The slightly stronger U.S. dollar against a basket of currencies will make gold less affordable to non-U.S. buyers.

Some analysts believe the bullish longer-term outlook for gold is intact in view of prospects for stubborn inflation against a backdrop of tariffs. Gold can be seen as a hedge against inflation.

Sterling Firms as UK Faces Mixed Economic Signals

The pound sterling firmed against the U.S. dollar in the first half of August, due to market sentiment that U.S. rates could fall quicker than UK rates.

UK labour data in August showed softness in hiring but steady wage growth, representing a challenge for the Bank of England, faced with an awkward combination of a slowing economy and stubborn inflation.

The UK central bank cut rates earlier in August, but signalled worries over the outlook for UK inflation.

Many traders say the next Bank of England rate cut might only come in November