Gold futures sink 1% as investors watch for inflation, ECB updates

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Gold futures were headed sharply lower on Thursday as investors in precious metals awaited the U.S. May consumer price index data and looked to parse the most recent policy update from the European Central Bank.

August gold GCQ21, -0.15%  was down $19.50, or 1%, at $1,876 an ounce, following a roughly 0.1% rise on Wednesday.

The slide for bullion comes as the U.S. dollar and bond yields appear relatively quiescent as commodity investors await the U.S. May inflation data due at 8:30 a.m. Eastern. Economists expect the CPI to show a 0.5% monthly rise for May. That would put the year-over-year rate at 4.8% or a bit higher, the fastest pace since 2008 when oil peaked at $150 a barrel.

Gold markets have struggled to gain sustained altitude above a psychologically important price at $1,900 an ounce. A slide in bond yields and a weak dollar has intermittently served as support for the yellow metal, but uncertainty about the path of inflation has made for turbulent trade.

 “The bond market has made up its mind that inflation will be transitory, but the gold market has not,” wrote Edward Moya, senior market analyst at Oanda, in a Wednesday research note.

The benchmark 10-year Treasury yield TMUBMUSD10Y, 1.522% on Wednesday hit its lowest level since early March and the dollar has held steady, as gauged by the ICE U.S. Dollar Index DXY, -0.01%. Yields were hanging around 1.51% early Thursday.

“Gold should continue to consolidate leading up to the US inflation report. If pricing pressures come in hotter-than-expected, gold might experience a knee-jerk selling that will completely get bought into,” Moya wrote.  

Meanwhile, the ECB said left its benchmark rates unchanged, as expected, but said that it could recalibrate its asset-purchase program to help continue to support financial markets in the eurozone.