Gold rebounded on Friday alongside US equities despite new inflation data that reinforced expectations that the Federal Reserve will raise interest rates at its upcoming policy meeting.
Spot gold advanced nearly 2% to above US$4,400 ($6,133) per ounce, erasing losses from the previous session, while US gold futures also edged higher to recapture the $4,400 level.
The precious metal initially fell more than 1% following the release of the US consumer price index (CPI), which further cemented expectations for a Fed rate hike next week.
Data from the Labor Department showed CPI increased 0.4% in August, accelerating from a 0.1% rise in July and marking the fastest pace since May. The core CPI jumped 0.3% on a monthly basis, topping economist forecasts.
With the hotter-than-expected inflation, traders are now seeing an 85% probability of a September rate hike, up from 67% before the data, according to the CME’s (NASDAQ:CME) FedWatch Tool.
Markets look beyond Fed hike
Despite the apparently hawkish implications of the inflation data, gold quickly reversed its initial losses.
According to Bloomberg, some traders had reduced their rate hike bets ahead of the CPI release with the intention of rebuilding those positions afterwards, helping explain the market’s reaction.
“In the classic ‘buy the rumour, sell the news’ fashion, equities and fixed income investors have largely prepared for the commencement of a Fed hiking cycle,” Franklin Templeton Institute Head Investment Strategist Jeff Schulze wrote in a note.
Gold has hovered around the US$4,400 level in recent weeks as investors assess the outlook for US monetary policy.
TD Securities Senior Commodity Strategist Ryan McKay says further short-term weakness could present opportunities for investors.
“Any near-term weakness in the yellow metal should be increasingly viewed as a potential buying opportunity,” McKay says.
Independent metals trader Tai Wong also sees signs that bullion is stabilising following its recent pullback.
“Price action here suggests that gold is finding a short-term base after the recent retreat,” Wong told Reuters.
He adds that volatility has remained relatively muted because markets had already largely priced in a rate hike before the CPI release.
A pause in oil’s recent rally also provided some support for bullion after the International Energy Agency lowered its oil demand forecasts for this year.
Gold ETF demand remains strong
Elsewhere, physical gold demand in India remained subdued this week as volatile prices discouraged buyers, while investment demand remained strong in China.
The latest data from the World Gold Council showed global physically backed gold exchange-traded funds (ETFs) attracted more than US$17.9 billion of inflows in August, marking the second-largest monthly intake on record.
The surge was driven primarily by North American and European funds, with the latter posting their largest monthly inflows on record.
Total assets under management increased 16% during the month to US$615 billion, reaching their highest level since February.
Write to Jackson Chen at Mining.com.au
Image: Pixabay
