Gold retreats toward $4 300 as traders weigh Fed rate-hike path

Gold fell for a second day, as profit-taking stalled a recovery spurred by tame US inflation data and reduced expectations for an interest-rate hike.

Bullion slid as much as 0.9% to near $4 310 an ounce, extending a 1.3% decline in the previous session. The metal touched a 10-week high earlier on Thursday after a subdued US inflation print suggested the impact of energy-price shocks from the Iran war faded in July. That eased pressure on the Federal Reserve to pursue a more aggressive monetary policy.

“Gold looks to be catching its breath after a powerful run, with traders taking some chips off the table,” said Hebe Chen, senior analyst at Vantage Markets. “The push to a two-month high gave investors a natural point to lock in gains, especially after softer US CPI and PPI had already packed much of the good news into the rally.”

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Money markets are pricing in a roughly one-in-three chance of a September rate hike. Before the Fed meets again next month, additional reports on employment are due and investors will be watching Chairman Kevin Warsh’s remarks at the central bank’s annual Jackson Hole symposium later in August.

While the prospect of no rate hike is generally positive for non-yielding gold, rates that stay elevated for an extended period could weigh on bullion by making bonds more attractive. Meanwhile, any flare-ups in the Middle East risk a return to the higher energy prices that have underpinned inflationary risks since the US-Iran war began in late February.

Gold’s recovery above the key $4 000-an-ounce threshold in recent weeks has been driven by renewed investor appetite and an increase in central bank purchases, notably from China. Gains earlier this week took the metal above its 100-day moving average for the first time since April, although it has since returned below the threshold.

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“The macro setup has turned more constructive, although positioning is less supportive and technical momentum is starting to look stretched after the recent rebound,” Christopher Wong, a strategist at Oversea-Chinese Banking Corp., said in a note. “Consolidation risks remain around current levels,” he added.

Spot gold fell 0.5% to $4 329.50 an ounce at 7:30 a.m. in London. Silver slipped 0.4% to $64.26 an ounce. Platinum and palladium were little changed, while the Bloomberg Dollar Spot Index, a gauge of the US currency, shed 0.1%.

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