Gold retains gains on soft U.S. inflation data; all eyes on Fed

SINGAPORE (Reuters) - Gold retained overnight gains from its biggest jump in nearly a month on Thursday as sluggish U.S. inflation data eased fears the Federal Reserve would hike interest rates later this session.

FUNDAMENTALS

Spot gold was holding steady at $1,119.40 an ounce at 0045 GMT, near a one-week high of $1,124.30 reached in the previous session. The metal gained 1.3 percent on Wednesday, its biggest daily jump since Aug. 20.

U.S. gold also held firm at $1,119.30, following a 1.5-percent gain overnight.

Bullion got a boost as data on Wednesday showed U.S. consumer prices unexpectedly fell in August, pointing to tame inflation that complicates the Fed's decision whether to hike interest rates.

Signs of a disinflationary trend reasserting itself are in stark contrast with a fairly healthy economy and a rapidly tightening labour market, and highlight the dilemma Fed officials face as they contemplate raising interest rates for the first time in nearly a decade.

The U.S. central bank kicked off a two-day policy meeting on Wednesday, with a decision on interest rates expected at 1800 GMT Thursday.

Expectations that the Fed would hike rates at this week's meeting had already been lowered due to recent concerns over slowing economic growth in China and volatility in financial markets.

In a Reuters poll of 80 economists, 45 said the Fed would keep its benchmark interest rate between zero and 0.25 percent, while 35 expected a hike.

The uncertainty over the timing of a rate hike has weighed on gold all year, sending it down over 6 percent. Higher rates could curb demand for non-interest-paying bullion.

Softness in the dollar, following the inflation data, also supported gold prices.

Among other precious metals, silver was holding firm at $14.88, following a 3.5-percent jump in the previous session, its biggest one-day jump since May. Platinum edged higher for a third straight session.

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford)