Gold rises after softer inflation data but is heading for a monthly decline.
Gold prices continued to rise following the release of U.S. inflation data that came in below expectations; this weighed on the dollar and revived hopes that the Federal Reserve would not raise interest rates again as early as October.
Spot gold was up 0.7% at $4,209.71 per ounce at 9:05 a.m. Eastern Time (13:05 GMT). However, prices were down 5.4% since the start of September.
U.S. gold futures rose 1.5% to $4,241.90.
The Personal Consumption Expenditures (PCE) price index rose 0.3% last month, following a downwardly revised 0.1% increase in July, the Commerce Department's Bureau of Economic Analysis announced on Wednesday. In the 12 months through August, PCE inflation rose 2.6%, following a downwardly revised 3.4% increase in July. The core PCE index rose 3.0% year-on-year in August, matching the (also downwardly revised) 3.0% rise seen in July.
The dollar extended its losses after the data release, supporting the precious metal by making it cheaper for foreign buyers.[USD/]
"Core PCE came in a tenth of a point below consensus, while the downward revision to last month's figure supported gold and may have established a short-term floor at $4,100, matching Monday's low," said Tai Wong, an independent metals trader. The Fed is currently focusing explicitly on inflation, and this should further reduce the likelihood of a rate hike in October.
The U.S. central bank tracks PCE price indicators to meet its 2% inflation target. This month, the Fed raised its benchmark interest rate to a range of 3.75% to 4.00%, while signaling further hikes in the coming months.
Although gold is traditionally viewed as a hedge against inflation, it loses its appeal compared to yield-bearing assets in a high-interest-rate environment.
New York Fed President John Williams stated that policymakers would likely need to implement only one more rate hike this year to put inflation back on the right track. He also indicated that he saw "no urgency" to take further action.
Financial markets now assign a probability of only about 37% to a rate hike in October, down from approximately 45% prior to the release of the PCE data, according to the Chicago Mercantile Exchange (CME) FedWatch tool.
Spot silver fell 0.5% to $61.15, platinum rose 0.4% to $1,711.77, and palladium edged down 0.1% to $1,221.36. All three metals were heading for a monthly decline.
