Gold prices extended losses on Wednesday as U.S. inflation data came broadly in line with expectations but slightly increased bets on a Federal Reserve interest-rate hike next month. A stronger dollar also weighed on bullion, while investors awaited remarks from Fed Chair Kevin Warsh at the Jackson Hole symposium on Friday. Spot gold fell 1.3% to $4,595.93 per ounce by 1:57 p.m. EDT, retreating after reaching its highest level since May 14 in the previous session. U.S. gold futures settled 0.9% lower at $4,653.30.
The dollar rose 0.3%, making dollar-priced gold more expensive for buyers using other currencies. "Gold's price action up to today's data was just some profit taking ... PCE data came in largely in line with expectations, so we're consolidating within yesterday's range at this point," said Peter Grant, vice president and senior metals strategist at Zaner Metals.
The Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge, increased 3.7% in the 12 months through July, according to the Commerce Department's Bureau of Economic Analysis. Economists polled by Reuters had expected a 3.6% reading.
Following the release, traders priced in a 40% chance of a September rate hike, up from 36% immediately before the data, according to the CME FedWatch Tool. The probability of unchanged rates stood at 60%. Higher interest rates typically reduce gold's appeal because the metal pays no interest. Earlier soft consumer and producer inflation readings had tempered expectations of an imminent hike. On Tuesday, markets had assigned a 38% probability to a September increase as investors waited for the PCE report and Warsh's upcoming remarks.
Wednesday's decline followed a rally driven by dollar weakness, technical buying and renewed demand for protection against policy uncertainty. The previous Friday, spot gold climbed 2.4% to $4,623.94 an ounce after touching $4,631.99, then its highest level since May 15. Futures settled 2.4% higher at $4,680.60. Bullion had gained more than 5% that week and was heading for a third consecutive weekly advance, with the preceding Wednesday delivering its biggest one-day rise since early February.
The rally pushed gold above all key moving averages, including its closely watched 200-day average near $4,513, a development technical analysts generally consider bullish. "A big factor, of course, is technical ... next step is $4,700 if this momentum continues, but also I think it's been very much driven by a drop in the U.S. dollar," said Bart Melek, global head of commodity strategy at TD Securities. That resistance level came into focus on Tuesday, when spot gold reached $4,696.18 before losing momentum. It was subsequently down 0.1% at $4,647.03, while futures settled 0.1% lower at $4,694.50.
The dollar's earlier weakness followed the U.S. Treasury Department's announcement that it would double buybacks of longer-dated securities. Treasury Secretary Scott Bessent subsequently said the government could expand the operations further. Although intended to support bond-market liquidity, the plans prompted questions among investors about confidence in the dollar, helping push the currency to a more than three-month low last week.
Goldman Sachs said demand for gold call options had risen sharply as investors sought hedges against global macroeconomic policy risks, potentially amplifying price moves in both directions.
The bank also pointed to reduced conviction around further rate hikes following the Fed's July pause and softer economic data, which had revived speculative interest in COMEX gold and demand for rate-sensitive gold exchange-traded funds. Despite the latest pullback, Grant remained positive on the outlook. "I think the uptrend in gold is beginning to reassert itself. So I do see potential back above $5,000 this year," he said, adding that new record highs were possible by the second quarter of 2027.
Physical demand was mixed. Higher prices discouraged retail buyers in India, while demand in China remained steady. China's net gold imports through Hong Kong rose about 11% month on month in July, supported by stronger investment demand. Poland's central bank, meanwhile, slowed its gold purchases to 7.8 metric tons in July. Investors also monitored developments involving Iran. After pledging to resist expanded U.S. sanctions on Tuesday, Iran remained in discussions with Oman on Wednesday over details of an agreement concerning the Strait of Hormuz. A senior Iranian source said negotiations continued after Iran's Revolutionary Guards said the countries had agreed to share the waterway and its revenue.
Other precious metals also declined on Wednesday. Spot silver fell 1% to $67.93 an ounce, platinum dropped 1.4% to $1,831.67, and palladium edged down 0.1% to $1,324.63, extending Tuesday's losses after all three had been on course for weekly gains the previous Friday.
