Gold prices took a hit on Thursday following the release of U.S. producer prices data. The U.S. Federal Reserve recently announced that they would only be cutting interest rates once this year, which is fewer times than previously anticipated. This news, combined with the cooling inflation in May, caused gold prices to drop by over 1%.

Analysts have attributed the decline in gold prices to profit-taking, with spot gold falling to $2,299.61 per ounce and U.S. gold futures dropping by 1.7% to $2,315.40. The unexpected fall in U.S. producer prices in May, driven by lower energy costs, indicated a subsiding inflation trend after a surge in the first quarter.

Despite some progress in inflation, the Fed decided to keep rates steady and projected only one rate cut in 2024. This decision, coupled with better-than-expected growth and unemployment levels, has increased the opportunity cost of holding non-yielding bullion. As a result, traders have adjusted their bets to include about 50 basis points of Fed policy easing by the end of the year.

The recent consumer price index data also showed a slowdown in inflation, with gold initially rising by 1% before closing just 0.3% higher after the Fed’s press conference. Tai Wong, an independent metals trader based in New York, mentioned that Chinese buying interest may pick up at lower price levels, but it remains uncertain where that threshold may be.

In addition to gold, spot silver fell by 2.8% to $28.88 per ounce, platinum was down 1.3% at $951.30, and palladium lost 2.1% to $887.50. The market reaction to the Fed’s decision and the inflation data highlights the volatility and sensitivity of precious metal prices to economic indicators and central bank policies. Investors and traders will continue to monitor these factors closely to gauge the future direction of gold prices and other precious metals.