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Gold drops on higher than expected US inflation figures

The gold price declined by 0.36% on Wednesday as the US dollar rose after higher-than-expected U.S. inflation data.

The U.S. Labour Department data showed that headline and core Consumer Price Index (CPI) in August rose by 0.6% and 0.3%. However, the market expected inflation to increase by 0.6% and 0.2%. Although the headline figures aligned with the forecast, core inflation was higher than anticipated, increasing the chances that the Federal Reserve (Fed) might continue lifting rates.

According to the CME FedWatch Tool, the probability of another 25-basis-point rate hike in November or December is now above 40%. As for next week's Fed monetary policy meeting, the market believes the regulator will keep the base rate unchanged. U.S. interest rate expectations are affecting the gold price greatly. 'Precious metal investors are less worried about higher inflation and more focused on the opportunity costs associated with holding a non-interest-bearing asset in a rising rate environment,' said Chris Gaffney, the president of EverBank World Markets.

XAU/USD continued to decline slowly during the Asian session. Today's macroeconomic calendar is full of events, so traders should be cautious. Firstly, the European Central Bank (ECB) will announce its interest rate decision at 12:15 p.m. UTC. Any signs that the ECB sticks with a hawkish stance will likely add extra bearish pressure on precious metals. Secondly, the U.S. will release several important economic reports at 12:30 p.m. UTC. Investors would monitor the Producer Price Index (PPI), Retail Sales, and Jobless Claims data. Any indication that the U.S. economy remains resilient and price pressure isn't easing will increase the probability of another rate hike from the Fed and put downward pressure on XAU/USD.

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