Gold steady as hot US inflation bolsters chance of rate hike

Gold steadied – after dropping for a third straight week – as hotter-than-expected US inflation data raised the chance of the Federal Reserve hiking interest rates later this week.

Bullion was trading near $4,350 an ounce. Underlying inflation rose in August as the core consumer price index, which excludes food and energy costs, increased 0.3% from a month earlier, data released on Friday showed. Gold ended that session higher, but was still down 1.8% for the week.

The latest inflation print piles pressure on the Fed to make its first rate increase in three years, with traders pricing in an almost 90% chance of it happening. Any hike risks attracting the ire of president Donald Trump, who reiterated calls for lower rates on Sunday. Higher borrowing costs are typically negative for gold, which doesn’t pay interest.

The market has largely priced in the risk of a rate hike, but gold still faces further headwinds if it materializes, said Yuxuan Tang, Asia head of rates & FX strategy at JPMorgan Private Bank. “By contrast, a hold, hawkish or dovish, would likely push real yields lower and reignite concerns about policy credibility and currency debasement, which should be supportive for gold.”

With conflict in the Middle East continuing to escalate, oil prices jumped higher, adding to inflationary pressure. Brent rose toward US$107 a barrel, after rallying almost 9% last week. A meeting planned for Monday between Iran and several Gulf nations to create a temporary shipping lane through the Strait of Hormuz was postponed, leaving efforts to increase exports through the critical waterway in limbo.

Gold has most traded around US$4,400 an ounce since bouncing from a floor near US$4,000 an ounce in in early August, as traders repeatedly recalibrate the outlook for Fed policy. Despite the near-term headwinds, many investors are still betting that bullion will grind higher as it rediscovers its traditional value as a portfolio hedge.

Bullion will remain well-supported in the medium term even if the Fed hikes, JPMorgan’s Tang said. Monetary tightening “would add pressure to parts of the economy that are already struggling with elevated energy costs and risk a widened K-shaped growth trajectory,” increasing recession risk that will be positive for gold, she said.

Spot gold was flat at US$4,348.87 an ounce at 10:17am in Singapore. Silver fell 0.5% to US$64.19 an ounce. Platinum and palladium were little changed. The Bloomberg Dollar Spot Index, a gauge of the US currency, was 0.1% higher.

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