Gold edges up on softer dollar, rate hike bets cap rise

A display of gold ornaments at a gold shop in Chinatown, Bangkok, Thailand. Gold prices edged lower on Wednesday after hotter-than-expected U.S. inflation data boosted the dollar.

Anusak Laowilas | Nurphoto | Getty Images

Gold prices slipped below the key $1,700 per ounce level on Wednesday, as expectations for steep rate hikes from the U.S. Federal Reserve took some sheen off the non-yielding precious metal.

Spot gold fell 0.36% to $1,695.47 per ounce, after marking its biggest one-day percentage decline since July 14 on Tuesday, driven by the dollar’s rally following a surprise rise in U.S. inflation.

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U.S. gold futures settled 0.48% lower at $1,709.10.

“We saw today some follow through technical selling pressure after yesterday’s stronger losses,” said Jim Wyckoff, senior analyst at Kitco Metals.

Markets are now pricing in a rate hike of at least 75 basis points by the Fed at its Sept. 20-21 policy meeting, following an unexpected rise of 0.1% in the U.S. consumer price index for August.

“Tighter monetary policies are going to slow global economic growth, which in turn is gonna reduce producer and consumer demand for the (precious) metals,” Wyckoff added.

Gold is considered a hedge against inflation, but higher rates to tame rising prices dim appetite for the asset since it bears no interest.

Meanwhile, the dollar fell 0.2%, making greenback-priced bullion less expensive for overseas buyers.

“Gold could be vulnerable to a tumble towards $1,650 and possibly much lower if the Fed signals more aggressive rate hikes remain on the table,” Edward Moya, senior analyst with OANDA, said in a note.

Spot silver rose 1.2% to $19.56 per ounce, platinum gained 3% to $904.45, and palladium added 2.7% to $2,160.62.

“The PGMs (platinum group metals) are likely to bounce back in the coming months as auto production recovers but we remain cautious given the risk of recession that is likely to cap the upside,” Standard Chartered said in a note dated Tuesday.

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