Gold prices moved lower on Thursday after reaching their highest level in more than two months, as investors balanced encouraging U.S. inflation data against concerns that elevated energy costs could keep the Federal Reserve cautious about the path for interest rates. At 01:54 ET (05:54 GMT), XAU/USD fell 0.5% to $4,388.64 an ounce, while Gold Futures declined 0.5% to $4,446.12. XAG/USD slipped 0.4% to $65.08 an ounce and XPT/USD dropped 0.6% to $1,746.71.
Softer CPI reduces immediate pressure on the Fed
Gold climbed as much as 0.9% on Wednesday to around $4,450 an ounce, marking its strongest level in more than two months before giving back part of the advance. The pullback continued early Thursday, with spot prices down approximately 0.5%.
Bullion had gained around 1% after data showed U.S. consumer prices increased just 0.1% month-on-month in July, matching forecasts. The reading suggested that the energy-price shock associated with the Iran conflict had not yet translated into a significantly stronger inflationary impulse.
The figures prompted traders to reduce expectations for an imminent increase in U.S. interest rates. CME FedWatch indicated that markets were assigning roughly a 38%-40% probability to a September rate hike, compared with 46% before the CPI data.
The Federal Reserve kept its benchmark rate unchanged at 3.50%-3.75% at its July meeting, although three policymakers dissented in favour of raising rates.
Attention now turns to Thursday’s U.S. producer price report, which will provide another indication of inflationary pressures ahead of the Fed’s next policy decision.
Additional employment and inflation reports are also due before September. Investors will meanwhile closely follow comments from Fed Chair Kevin Warsh at the Jackson Hole symposium later this month for indications of how policymakers are assessing the trade-off between inflation and economic growth.
Higher interest rates generally create a less favourable environment for gold because the precious metal does not provide interest income.
Strait of Hormuz uncertainty keeps inflation risks in focus
Although the softer consumer inflation report initially boosted gold by reducing expectations for an imminent rate increase, bullion has since surrendered some of those gains.
Attempts to bring the U.S.-Iran conflict to an end and restore normal traffic through the Strait of Hormuz remain inconsistent, leaving the strategically important waterway subject to severe restrictions. Oil is heading towards a weekly gain as markets monitor the latest diplomatic efforts between Washington and Tehran.