Gold Futures Rise as U.S. Consumer-Price Drop Eases Rate Concern

  • Fed-fund futures show lower probability of monetary tightening
  • CPI data gives ``another reason to put off rate hike''

Gold futures gained the most in more than three weeks as signs of tame U.S. inflation eased concern that the Federal Reserve will raise interest rates this week.

Prices paid by American households declined in August as cheaper gasoline helped keep increases below the objective of Fed policy makers, a government report showed Wednesday. Gold, historically sought as a store of value as consumer prices rise, is instead benefiting from doubts on how soon inflation will return to the Fed’s 2 percent target.

Central bankers conclude a two-day meeting on Thursday, and Fed-fund futures show a 28 percent chance of a 25 basis point increase, down from 32 percent on Tuesday. The probability is 62 percent by December, based on data compiled by Bloomberg. Higher rates curb the allure of gold by making it less competitive against assets that pay a yield, like bonds.

“The CPI data gives us another reason to put off the rate hike tomorrow,” James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. “Gold would still look undervalued if we’re going to keep rates where they are.”

Gold futures for December delivery climbed 1.5 percent to settle at $1,119 an ounce at 1:42 p.m. on the Comex in New York. That marked the biggest gain since Aug. 20. Trading was 14 percent below the 100-day average, according to data compiled by Bloomberg.

Silver futures for December delivery jumped 3.9 percent to $14.885 an ounce on the Comex, the biggest gain in four months. On the New York Mercantile Exchange, platinum futures for October delivery added 1.8 percent to $975.70 an ounce, while palladium futures for December delivery climbed 1.9 percent to $611.95.

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