Gold pulled back on Thursday as traders booked profits after a cooling US inflation reading drove the metal to a two-month high a day earlier. The pullback tracks reduced bets on an imminent Federal Reserve rate hike, while a standoff over the Strait of Hormuz and a softer dollar kept the broader picture mixed.
Spot gold fell 0.6% to $4,383.34 an ounce at 05:58 ET on Thursday. The metal was retreating after climbing to around $4,450 the previous day, its highest level in two months. Gold futures also slipped 0.6% to $4,440.87 an ounce.
CPI cools, rate-hike bets fall
The rally that preceded the pullback followed data showing US consumer price growth cooled to 3.4% from 3.5% in the twelve months to July, in line with forecasts. That reading reduced expectations for an imminent Fed rate hike: markets were last pricing a roughly 36% probability of a hike at the September meeting, down from 46% before the release, according to CME FedWatch.
Policymakers held rates at a range of 3.50% to 3.75% at its July meeting, though three policymakers dissented in favor of an increase. Further data, including Thursday's US producer price report, will arrive ahead of the September decision. Investors are also watching for Fed Chair Kevin Warsh's remarks at the Jackson Hole symposium later this month, since elevated borrowing costs could present a headwind for gold because bullion does not generate interest income.
Warsh's insistence that the Fed will offer less of a policy roadmap will translate into "more guesswork for the market", Max Baecker, President of American Hartford Gold, told Investing.com.
Hormuz standoff and a softer dollar
Diplomatic efforts to end the Middle East conflict and reopen the Strait of Hormuz have shown little sign of an immediate breakthrough, leaving severe traffic restrictions in the waterway in place, while crude prices head for a one-week gain. Baecker said oil is affecting gold through inflation, interest rates and the Fed.
Meanwhile, the US dollar index weakened slightly, helping moderate declines in gold, since a softer dollar makes the metal less expensive for overseas buyers. Central bank purchases, especially in China, have also supported prices in recent days.
Source: Investing.com
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