Gold dips amid firm dollar, concerns over aggressive U.S. rate hikes

Gold prices edged lower on Wednesday after hotter-than-expected U.S. inflation data boosted the dollar and expectations that the Federal Reserve will continue on aggressive policy tightening path.

Spot gold prices fell 0.2% to $1,698.14 per ounce, as of 0120 GMT.

U.S. gold futures were down 0.4% at $1,710.

The dollar index, which measures the currency against six major peers, ticked 0.1% higher after recording its biggest one-day percentage gain since March 2020 overnight.

Benchmark U.S. Treasury yields hovered close to a near three-month peak touched on Tuesday.

U.S. consumer prices unexpectedly rose in August and underlying inflation accelerated amid rising costs for rents and healthcare, giving the Fed ammunition to deliver a third 75 basis points interest rate hike next Wednesday.

The Fed is likely to raise U.S. borrowing costs faster and further than previously expected after the inflation data, with Nomura’s economists saying they now believe a 100 basis-point rate hike is the most likely outcome at the September meet.

Even though gold is seen as a hedge against inflation, higher interest rates increase the opportunity cost of holding the bullion while boosts the dollar, in which the precious metal is priced.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.21% to 962.88 tons on Tuesday from 964.91 tons on Monday.

Spot silver dipped 0.2% to $19.29 per ounce. Platinum edged 0.3% higher to $880.67 and palladium fell 1% to $2,083.18.