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Gold Holds Ground after Cooler US Inflation Data

A participant shows gold bars during the 21st edition of the international gold and jewelry exhibition at the Kuwait International Fairgrounds in Kuwait City on May 23, 2024. (Photo by Yasser AL ZAYYAT / AFP)
A participant shows gold bars during the 21st edition of the international gold and jewelry exhibition at the Kuwait International Fairgrounds in Kuwait City on May 23, 2024. (Photo by Yasser AL ZAYYAT / AFP)
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Gold Holds Ground after Cooler US Inflation Data

A participant shows gold bars during the 21st edition of the international gold and jewelry exhibition at the Kuwait International Fairgrounds in Kuwait City on May 23, 2024. (Photo by Yasser AL ZAYYAT / AFP)
A participant shows gold bars during the 21st edition of the international gold and jewelry exhibition at the Kuwait International Fairgrounds in Kuwait City on May 23, 2024. (Photo by Yasser AL ZAYYAT / AFP)

Safe-haven gold held its ground on Wednesday, aided by tariff uncertainty and a cooler inflation report that keep bets for a US rate cut intact.

Spot gold was up 0.1% at $2,917.93 an ounce as of 1258 GMT. US gold futures inched up 0.1% $2,923.80.

Data showed that US consumer price index rose 0.2% last month after accelerating 0.5% in January. However, the improvement is likely temporary against the backdrop of aggressive tariffs on imports that are expected to raise the cost of most goods in the months ahead.

"Gold has been resilient but stuck in a range in recent weeks; whether it can break higher on this CPI report will be an important signal," said Tai Wong, an independent metals trader.

"In the medium term, the uncertainty will keep gold supported so any sharp dips will be bought."

On the trade policies front, President Donald Trump's increased tariffs on all US steel and aluminum imports took effect on Wednesday, stepping up a campaign to reorder global trade in favor of the US and drawing swift retaliation from Europe, Reuters reported.

Last year, the Federal Reserve reduced interest rates by 100 basis points. Financial markets expect the Fed to resume cutting rates in June because of the deteriorating economic outlook, after pausing in January.

Non-yielding gold thrives in a low interest environment and is considered a safe investment during periods of economic and geopolitical turmoil.

The US Producer Price Index (PPI) and weekly jobless claims data due on Thursday are the next data sets on investors' radar.

Spot silver added 0.7% to $33.16 an ounce.

Silver should outperform gold in our base case of a modest recovery in manufacturing activity, although a sharper slowdown in US growth is a key risk, UBS said in a note.

Platinum gained 1.5% at $990.00 and palladium rose by 0.7% to $952.23.

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Turkish Lira Touches Record Low, Stocks and Bonds Slide After Istanbul Mayor Detained 

24 May 2018, Türkiye, Istanbul: Turkish lira bills are seen fanned out. (dpa)
24 May 2018, Türkiye, Istanbul: Turkish lira bills are seen fanned out. (dpa)
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Turkish Lira Touches Record Low, Stocks and Bonds Slide After Istanbul Mayor Detained 

24 May 2018, Türkiye, Istanbul: Turkish lira bills are seen fanned out. (dpa)
24 May 2018, Türkiye, Istanbul: Turkish lira bills are seen fanned out. (dpa)

Türkiye's lira fell as much as 12.7% and touched a new all-time low of 42 to the dollar on Wednesday, with bonds and stocks also tumbling sharply, after authorities detained President Recep Tayyip Erdogan's main political rival.

The move against Ekrem Imamoglu, the mayor of Istanbul, was called "a coup attempt" by the opposition and appears to cap an aggressive months-long legal crackdown on opposition figures across the country which has been condemned as a politicized attempt to silence dissent.

Imamoglu was expected to be named as the main opposition's presidential candidate within days.

The lira traded at 38.90 to the dollar at 1016 GMT, from a close of 36.67 on Tuesday, having recouped some of the losses from the all-time low it hit earlier - but still having had its biggest decline since July 2023. The earlier tumble to 42 marked one of the lira's largest absolute intraday moves on record.

Türkiye's international government bonds also came under pressure with longer-dated maturities suffering the sharpest falls. The 2045 maturity fell 1.6 cents to be bid at 85.117 cents, its lowest level since

"In Türkiye this morning, bonds and FX are coming under pressure after a potential presidential candidate, the mayor of Istanbul, was arrested," said Frantisek Taborsky, EMEA FX & fixed income strategist at ING.

"(Türkiye's lira) is the most heavily positioned carry-trade in the emerging markets space at the moment in our view, and a sharp move could potentially lead to further outflows. On the other hand, we should see local banks providing some FX support."

MONETARY POLICY

Finance Minister Mehmet Simsek said they were doing everything necessary to ensure healthy functioning of the markets, without giving further details.

Bankers calculate that the Turkish central bank sold a minimum of $5 billion in FX after lira's crash, while some say it may have already reached $10 billion for the day.

Analysts and investors were also concerned about the knock on effect for monetary policy, worrying that the sharp decline in the lira could delay or halt the rate-cutting cycle since the central bank has been ensuring real appreciation of the currency for months.

The central bank had in December embarked on an easing cycle for the first time after an 18-month tightening effort that reversed years of unorthodox economic policies and easy money championed by Erdogan, which had seen the economy run red hot and inflation exceeding 70%. Erdogan has supported the steps by the central bank for a more orthodox policy.

"With this FX shock they need to keep rates where they are for now," one banker said.

Stocks also crashed, reflecting investor worries over rule of law. Turkish blue-chip stocks fell by nearly 6%, set for their worst daily performance since late 2023.

The banking sub-index declined 9.67%. Borsa Istanbul said trading was halted temporarily after the main BIST 100 index fell 6.87% in early trading and the market-wide circuit breaker was triggered.

"A wave of selling was triggered after Imamoglu's diploma was annulled and he was detained. There have been foreign investor inflows in recent days ... but political uncertainty currently prevails and concerns about foreign investors leaving the country have increased," Serhat Baskurt, algorithmic operations manager at ALB Yatırım, said.

Baskurt said he expected the decline on the stock exchange to continue over the coming days.

Borsa Istanbul said that the uptick rule on short sale transactions for the BIST 50 index would be used on Wednesday. The rule requires short sales to be conducted at a higher price than the previous trade.