Gold Shines as Dollar Retreats and Inflation Falls

Gold rose on Thursday, supported by a decline in the dollar and inflation data that came in line with expectations, prompting investors to reduce their bets on interest rate hikes following comments by Federal Reserve Chair Kevin Warsh the previous day that offered little clarity on inflation and monetary policy outlooks.

The dollar fell 0.9 percent against the yen, as traders awaited the possibility of Japanese authorities intervening to support the yen, which has come under significant pressure. A weaker dollar reduces the cost of gold for holders of other currencies.

Prices saw little change after a report from the U.S. Department of Commerce showed that the Personal Consumption Expenditures (PCE) price index fell 0.1 percent in June, in line with economists’ forecasts surveyed by Reuters. This decline is likely to be temporary, as renewed fighting in the Middle East is driving up oil prices.

“PCE data appear slightly better than market expectations. So, the current inflation situation is largely stable. However, the oil market will remain a problem,” said Bart Millic, commodities strategy director at TD Securities.

He added, “Inflation may be somewhat under control at the moment, but that could easily change if instability in the Middle East persists.”

The Federal Reserve kept interest rates unchanged on Wednesday, while Chair Kevin Warsh reaffirmed the central bank’s commitment to controlling inflation, leaving markets uncertain about its next move.

According to the CME’s FedWatch tool, markets now price in a 57 percent probability of a rate hike at the September meeting, down from around 77 percent before the monetary policy decision. For other precious metals, spot silver rose 1.5 percent to $58.52 per ounce, platinum gained 1.9 percent to $1,641.78, and palladium climbed 3.8 percent to $1,294.50.