Gold drops 1% after in-line U.S. inflation data

Gold prices extended losses after U.S. inflation data came largely in line with expectations on Wednesday, increasing bets on a Federal Reserve interest-rate hike next month, while investors also awaited remarks from Chairman Kevin Warsh this week.

Spot gold fell 1% to $4,611.79 per ounce by 1310 GMT (9:10 a.m. EDT), after prices had climbed to their highest since May 14 on Tuesday. U.S. gold futures dropped 0.6% to $4,667.10.

The dollar rose 0.2%, making greenback-priced bullion more expensive for holders of other currencies.

“Gold’s price action up to today’s data was just some profit taking… PCE data came in largely in line with expectations, so we’re consolidating within yesterday’s range at this point,” said Peter Grant, vice president and senior metals strategist at Zaner Metals.

The Personal Consumption Expenditures Price Index, which the Fed uses to set its target, increased 3.7% in the 12 months through July, the Commerce Department’s Bureau of Economic Analysis said on Wednesday. Economists polled by Reuters had forecast a reading of 3.6%.

Traders now see a 40% chance of an interest rate hike next month, compared to 36% before the data, and are pricing in a 60% chance that the Fed will leave rates unchanged, according to the CME FedWatch Tool.

Non-yielding gold often loses its appeal in a high-interest-rate environment.

“I think the uptrend in gold is beginning to reassert itself. So I do see potential back above $5,000 this year,” Grant said, adding that there is potential for gold to reach new all-time highs by the second quarter of 2027.

On the geopolitical front, Iran and Oman have reached an agreement on their share of the Strait of Hormuz and its revenues, but the vital waterway will not be reopened if the U.S. does not accept their conditions, Iran’s Revolutionary Guards said on Wednesday.

Among other metals, spot silver fell 0.7% to $68.15 per ounce, platinum fell 0.3% to $1,851.55, while palladium rose 0.5% to $1,333.50.