Gold Pares Drop after US Inflation Sets Stage for Big Fed Hike

(Bloomberg) — Gold pared early declines after hotter-than-expected US inflation data set the stage for more aggressive interest-rate hikes by the Federal Reserve. Copper erased losses.

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The rebound in bullion came as the dollar sank and the British pound climbed amid reports that the UK government officials are working on a U-turn of the sweeping tax cuts proposed by Prime Minister Liz Truss. A softer dollar boosted the precious metal which is priced in the greenback.

Earlier, gold tumbled the most in more than two weeks following higher-than-expected inflation data in the US. The core consumer price index, which excludes food and energy, increased 6.6% from a year ago, the highest level since 1982, Labor Department data showed Thursday. Overall CPI increased 0.4% last month, and was up 8.2% from a year earlier.

The Fed’s aggressive moves have strained bond and currency markets around the world this year, while failing to significantly cool the US labor market. It has also hurt gold, sending it down almost 20% from its March peak. Now the US central bank looks set to carry on more big hikes, the precious metal could come under further pressure.

“The narrative of 75-basis-point hike in November and then slowing to 50 basis-point is in some jeopardy,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York, noting that the CPI report suggests inflation may be more stubborn than investors believed. Wong said a 75-basis-point hike in November is “a total done deal.”

Officials from the US central bank have committed to raising interest rates to a restrictive level in the near future, although some emphasized the importance of calibrating the increases to mitigate risk.

Spot gold fell 0.2% to $1,669.22 an ounce as of 2:24 p.m. in New York, after earlier slumping as much as 1.8%. Bullion for December delivery was little changed to settle at $1,677 on the Comex. The Bloomberg Dollar Spot Index was 0.6% lower after earlier gaining as much as 0.6%. Silver and palladium fell, while platinum rose.

In the base metals market, copper rose 0.4% on the London Metal Exchange to settle at $7,573 a metric ton on as of 5:53 p.m. All other main LME metals except zinc were higher.

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