Gold Retreats on Soft Inflation Data, Weaker Dollar

Gold prices have retreated from their two-month high as investors lock in profits following soft inflation data. The data, released this week, showed a deceleration in U.S. consumer price growth to 3.4% from 3.5% in the twelve months to July, in line with forecasts.

The producer prices were unchanged month-on-month in July, further reducing expectations for an imminent Federal Reserve interest rate hike. The Fed's September meeting now has a roughly 36% probability of a hike, down from 46% before the release of consumer price data.

Investors are also waiting to see what insights can be gleaned from Fed Chair Kevin Warsh's comments at the Jackson Hole symposium later this month. However, his insistence on providing less of a policy roadmap may lead to 'more guesswork for the market', according to Max Baecker, President of American Hartford Gold.

Despite the volatility, central bank purchases of gold, especially in China, have been an important source of support. The weaker US dollar has also helped moderate declines in gold prices.