Gold steady as hot US inflation bolsters chance of rate hike

Gold remained stable after falling for the third consecutive week, as unexpectedly high US inflation heightened the likelihood of the Federal Reserve raising interest rates later in the week, according to Singapore. The precious metal was trading around $4,350 per ounce. Core inflation rose in August, with the core consumer price index increasing 0.3% from the previous month.

Gold closed the session up, but was still down 1.8% for the week. The latest inflation numbers put additional pressure on the Fed to make its first rate increase in three years, with traders pricing in nearly a 90% chance of this occurring. Any rate hike could spark protests from President Donald Trump, who has called for lower rates.

Higher borrowing costs typically have a negative impact on gold, which does not pay interest. However, the market has largely anticipated a rate hike, leaving gold vulnerable to further challenges if it materializes. Yuxuan Tang, Asia head of rates & FX strategy at JPMorgan Private Bank, noted that a pause, hawkish, or dovish stance from the Fed could lower real yields and reignite concerns about policy credibility and currency devaluation, which would support gold.

Meanwhile, ongoing conflict in the Middle East has caused oil prices to surge, further contributing to inflationary pressures. Brent crude oil reached US$107 per barrel, after jumping nearly 9% last week. A planned meeting between Iran and several Gulf nations to establish a temporary shipping lane through the Strait of Hormuz was postponed, leaving the issue of increasing exports through this vital waterway unresolved.

Gold has been trading around $4,400 an ounce since bouncing from a low near $4,000 in early August, as traders continuously adjust their views on Fed policy. Despite near-term obstacles, many investors still believe that gold will gradually rise, as it resumes its role as a traditional portfolio hedge. Even if the Fed raises rates, JPMorgan's Tang believes that monetary tightening will create additional pressure on parts of the economy already struggling with high energy costs and risk widening the K-shaped growth trajectory, increasing the risk of recession, which would be favorable for gold.

Spot gold was flat at $4,348.87 an ounce as of 10:17am in Singapore, while silver fell 0.5% to $64.19 an ounce. Platinum and palladium remained largely unchanged. The Bloomberg Dollar Spot Index, a measure of the US currency, increased by 0.1%.