Gold edged lower on Wednesday, primarily due to a strengthening U.S. dollar. Nevertheless, the growing consensus that the Federal Reserve will leave interest rates unchanged at its upcoming policy meeting next week helped limit the downside for the precious metal.
Spot gold declined by 0.2%, trading at $1,909.83 per ounce at 1:51 p.m. EDT (1751 GMT), partially recovering from a 0.4% drop following the release of August’s U.S. consumer price index (CPI) data.
Meanwhile, U.S. gold futures settled 0.1% lower at $1,932.50 per ounce.
The strengthening U.S. dollar index, bolstered by the U.S. inflation data, made gold comparatively more expensive for holders of other currencies.
According to the Labor Department’s data, the headline and core CPI figures for August increased by 0.6% and 0.3%, respectively, compared to the previous month. These figures were in line with economists’ expectations, suggesting that the Federal Open Market Committee (FOMC) is likely to keep interest rates steady. Chris Gaffney, President at EverBank World Markets, noted that this anticipation of rate stability is providing support for gold.
Traders’ confidence in the Fed‘s decision to maintain interest rates at its September 19-20 meeting grew stronger following the release of the data. According to the CME FedWatch tool, there is now a 61% likelihood of the Fed pausing again in November.
Higher interest rates tend to boost yields on competing safe-haven U.S. Treasury bonds, diverting investors from zero-interest-bearing gold. Gaffney explained, “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.”
Investor attention is now turning to upcoming data releases, including U.S. August producer prices and retail sales figures, as well as the European Central Bank’s rate hike verdict on Thursday, ahead of the Federal Reserve’s policy decision on September 20.
In the broader precious metals market, silver saw a decline of 1.2% to $22.83 per ounce, reaching a three-week low, while platinum slipped 0.9% to $901.93. On the other hand, palladium rose by 1% to $1,252.70.
