Gold Edges Higher Amid Inflation Data and Rate Hike Expectations

Gold prices rebounded on Friday after falling nearly 2% in the previous session, despite firm U.S. inflation data that bolstered bets on a Federal Reserve interest rate hike next week.

The yellow metal rose 1.7% to $4,390.39 an ounce by 09:51 ET (13:51 GMT), while platinum ticked up by 0.6% to $4,432.30 an ounce.

U.S. consumer price growth accelerated in August as anticipated, with an underlying gauge coming in slightly hotter than expected. Policymakers at the Fed have stressed that they will be focusing on corralling inflation when they meet next week.

Fed Chair Kevin Warsh has suggested that the central bank will “have work to do” if price growth does not display signs of sustainably easing down to 2%, the Fed’s inflation target. Markets were pricing in about an 86% chance of a quarter-point rate increase this month, compared to around 70% before the data.

Costs for several components that feed into one of the Fed's preferred inflation metrics increased at a faster pace in August, adding more downward pressure on gold. Oil prices have also become a major part of the inflation story, with benchmark oil remaining on track to finish the week above $100 a barrel for the first time in almost four months.

However, analysts at UBS suggested that gold's recent resilience does not mean that rate expectations no longer matter, but rather that the market has already absorbed a large tightening. They expect a September hike to generate a knee-jerk correction, but not to derail the broader recovery.