Spot gold prices erased gains from the session and dropped to the $1,920 per ounce mark, extending the retreat from the nine-month high of $1,945 touched on January 25th as investors further digested the latest economic data for hints on whether the Federal Reserve will maintain its hawkish stance. The PCE core price index, the Fed’s preferred inflation gauge, rose firmly from the prior month in December.
In the meantime, the US GDP growth surpassed expectations in the fourth quarter and weekly unemployment claims fell to a nine-month low, adding tightening leeway for the US central bank. The Fed is expected to scale back the pace of its rate hikes to 25bps next week from 50bps in December, while both the ECB and the BoE are set to stick with a 50bps increase. Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa.