Gold flat on hawkish Fed stance, stronger dollar

Bengaluru — Gold prices were flat on Wednesday, after falling more than 1% in the previous session, as surprisingly stronger US inflation data fuelled expectations that the Federal Reserve will continue hiking interest rates aggressively and bolstered the dollar.

Spot gold was flat at $1,701.70 per ounce as of 3.31am GMT. Prices saw their biggest one-day percentage decline since July 14 on Tuesday. US gold futures were down 0.4% at $1,710.40.

The stronger-than-anticipated numbers have “cemented the likelihood for a jumbo-sized rate hike at the (Fed) meeting that we’re going to see next week,” said DailyFX currency strategist Ilya Spivak. A hawkish Federal Open Market Committee (FOMC) could prompt gold to significantly shift lower, even below the $1,600 figure, Spivak said.

US labor department data showed on Tuesday the headline Consumer Price Index (CPI) edged up 0.1% last month vs expectations for a 0.1% decline, while core inflation surged 0.6%. The data has stoked expectations that the Fed could raise US borrowing costs faster and further than previously expected.

Nomura’s economists said they now believe a 100 basis-point (bps) rate hike is the most likely outcome at the September 20-21 meet.

The dollar index, which measures the currency against six major peers, was steady after recording its biggest one-day percentage gain since March 2020 overnight.

Benchmark US treasury yields hovered close to a near three-month peak touched on Tuesday.

Even though gold is seen as a hedge against inflation, higher interest rates increase the opportunity cost of holding bullion while they boost the dollar, in which the precious metal is priced.

Spot silver dipped 0.2% to $19.28 per ounce and platinum rose 0.5% higher to $880.67. Palladium fell 0.8% to $2,088.36, having fallen 7.1% in the previous session — its biggest one-day percentage drop since June 13.

Reuters