Gold holds near one-week low as hot US inflation boosts Fed hike bets

Gold prices edged higher in early Asian trade on Wednesday but remained close to a one-week low as stronger-than-expected US inflation data reinforced expectations of a Federal Reserve interest rate increase next month, pressuring bullion.

FUNDAMENTALS

Spot gold was up 0.2% at $4,039.07 per ounce, as of 0025 GMT, after falling nearly 3% in the previous session. US gold futures for December delivery rose 0.4% to $4,046.40.

The odds of a half-percentage-point Fed rate hike next month surged on Tuesday after data showed US inflation accelerated more than expected in October and policymakers signalled a willingness to tighten policy more aggressively.


Traders now see a 100% chance of a rate increase in December, up from 84% before the data, according to CME's FedWatch tool.

Although gold is typically seen as an inflation hedge, higher interest rates increase the opportunity cost of holding non-yielding bullion, reducing its appeal to investors.

Fed Vice Chair of Supervision Michelle Bowman joined a growing number of policymakers on Tuesday in stressing that bringing down inflation remains the central bank's top priority, though she stopped short of explicitly calling for further rate hikes and said price pressures should ease next year as the effects of recent economic shocks fade.

Elsewhere, the Monetary Authority of Singapore said on Tuesday it would launch a vaulting service to hold bullion for foreign central banks and lower taxes on some companies in the gold market as it competes for a bigger slice of the precious metals trade.

Among other metals, spot silver held steady at $51.52 per ounce, platinum rose 0.4% to $1,546.47 and palladium gained 0.2% to $1,027.19.