Gold eases as dollar strengthens, Fed pause hopes lend support

By Harshit Verma

(Reuters) – Gold inched lower on Wednesday due to a stronger dollar, although growing expectations that the Federal Reserve would leave interest rates unchanged at its policy meeting next week limited downside for the bullion.

Spot gold was down 0.2% at $1,909.83 per ounce at 1:51 p.m. EDT (1751 GMT), paring losses after a 0.4% drop following the release of August U.S. consumer price index (CPI) data.

U.S. gold futures settled 0.1% lower at $1,932.50 per ounce.

The dollar index rose against its rivals after the U.S. inflation data, making gold more expensive for other currency holders.

The Labor Department data showed headline and core CPI in August rose 0.6% and 0.3%, respectively, from the previous month. Economists were expecting increases of 0.6% and 0.2%, respectively.

The CPI data was largely in line with expectations, hinting that FOMC is expected to hold rates steady, providing a floor for gold, said Chris Gaffney, president at EverBank World Markets.

Traders’ expectations for the Fed leaving interest rates unchanged at its Sept. 19-20 meeting got stronger after the data, with a 61% likelihood of a pause in November as well, according to the CME FedWatch tool.

Higher interest rates boost yields on competing safe-haven U.S. Treasury bonds, drawing investors away from zero-interest-bearing bullion.

“Precious metal investors are less worried about higher inflation and more focused on the opportunity costs associated with holding a non-interest-bearing asset in a rising rate environment,” Gaffney added.

Investors are now looking forward to U.S. August producer prices and retail sales data and the European Central Bank’s rate hike verdict on Thursday ahead of the Fed’s Sept. 20 policy decision.

Silver shed 1.2% to $22.83 per ounce, touching a three-week low, while platinum fell 0.9% to $901.93. Palladium rose 1% to $1,252.70.

(Reporting by Harshit Verma in Bengaluru; Editing by Andrea Ricci, Shinjini Ganguli and Krishna Chandra Eluri)