Gold prices slide over 1% as US inflation data fuels rate-hike fears

Gold prices dropped more than 1% on Thursday to a two-week low after data showing higher-than-expected U.S. inflation numbers in September cemented market expectations the Federal Reserve will stick to its policy of aggressive interest rate hikes.

Spot gold dropped 1.5% to $1,647.80 per ounce by 1319 GMT. U.S. gold futures lost 1.4% to $1,6544.50.

The U.S. consumer price index (CPI) rose 0.4% last month after gaining 0.1% in August, the Labor Department said. In the 12 months through September, the CPI increased 8.2% after rising 8.3% in August.

The data "portends that the Fed is going to need to be more aggressive in fighting these inflationary pressures by raising interest rates at a faster pace" and hence, gold is under pressure, said David Meger, director of metals trading at High Ridge Futures.

Following the data, the dollar jumped, weighing on greenback-priced gold.

Benchmark U.S. 10-year Treasury yields also climbed. Higher interest rates and bond yields lower the appeal of non-yielding gold. 

The market's sharp reaction was seen as predictable.

"There was some optimism going into the report that we had seen consumer prices abate and with the news coming out that was not the case, we saw the obvious result of that," Meger said.

The minutes of the Fed's Sept. 20-21 meeting showed on Wednesday that policymakers agreed they needed to move to a more restrictive policy stance and maintain that for some time to lower inflation.

Fed officials reiterating their aggressively hawkish stance on monetary policy "has kept the general marketplace uneasy, for fear of pending U.S. and/or global recession," Jim Wyckoff, senior analyst at Kitco Metals, said in a note.

"Today's CPI report suggests the Fed is correct regarding its belief that inflation is still not under control."

Spot silver dropped 2.7% to $18.54 per ounce, platinum fell 2.3% to $859.83, and palladium dipped 3.7% to $2,056.42.

 

(Reporting by Bharat Govind Gautam in Bengaluru; editing by Barbara Lewis)