Gold edges higher, sticks to tight range, as U.S. inflation reading shows biggest monthly climb in over a year

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Gold prices traded higher on Wednesday, sticking to a tight trading range as investors digested the latest reading on U.S. inflation, which revealed the largest monthly climb in more than a year.

Price action

  • Gold futures for December delivery

    climbed by $2, or 0.1%, at $1,937.10 per ounce after losing 0.6% on Tuesday.

  • Silver futures for December were down by 8.7 cents, or 0.4%, to $23.315 per ounce.

  • Platinum for October delivery

    fell by $8.80, or 1%, to $904 per ounce, while palladium for December delivery

    added $1.20, or 0.1%, to $1,246.50 per ounce.

  • Copper for December delivery

    was up 0.1% at $3.797 per pound.

Market drivers

U.S. consumer prices rose by 0.6% in August, which marked the largest monthly increase in 14 months. If energy and food prices are set aside, so-called core inflation rose a smaller 0.3% in August, the consumer price index showed.

The yearly rate of inflation moved up to 3.7% last month from 3.2% in July. Economists polled by the Wall Street Journal expected consumer prices to rise 3.6% year-over-year.

For now, the market is digesting this inflation report and “starting to see holes in the economy,” said Edward Moya, senior market analyst at OANDA, in a market update. 

At the very most, gold might have to deal with one more Federal Reserve interest rate hike in November, but “it is clear that the economy will steadily weaken going forward,” he said. “Bad economic news is about to become good news again for gold.  Wall Street is getting closer to putting a peak in place for the dollar.”  

Following the CPI data, the ICE U.S. Dollar Index
a gauge of the dollar’s strength against a basket of major currencies, was down 0.1% at 104.56. The yield on the 10-year Treasury note
was little changed at 4.269% in Wednesday dealings.

Expectations for a hot reading on August U.S. inflation had helped drive the dollar higher alongside Treasury yields. The double-whammy has weighed on gold, since higher yields increase the return investors can reap from holding bonds, making gold, which offers no yield, less attractive by comparison.

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