Spot gold was down 0.7% at $4,152.86 per ounce. Prices briefly rose after US inflation data came in cooler than anticipated. Gold is down 6.6% in September so far.
US gold futures settled 0.2% higher at $4,186.70.
“With energy moving higher, bonds have given up gains and put metals back under pressure; it’s a disappointing day for gold even as the odds of an October rate hike have dropped substantially after the softer than expected core PCE result,” said independent metals trader Tai Wong.
The Personal Consumption Expenditures Price Index rose 0.3% last month after a downwardly revised 0.1% gain in July, the Commerce Department’s Bureau of Economic Analysis said on Wednesday. Core PCE increased 3.0% year-on-year in August after a downwardly revised 3.0% advance in July.
Financial markets now see an about 39% chance of a rate hike in October, down from about 45% before the PCE data, CME’s FedWatch Tool showed. Chances of a December hike are at 90%.
The dollar retreated following the data, but was still headed for a monthly gain, making greenback-priced bullion more expensive for overseas buyers.
The Fed tracks the PCE price measures for its 2% inflation target. After raising interest rates to the 3.75%-4.00% range this month, the Fed flagged further increases in the months ahead. While gold is traditionally considered an inflation hedge, it loses its appeal to yield-bearing assets in high-interest-rate settings.
Meanwhile, oil prices rose and were on track for a big monthly gain as US-Iran talks aimed at ending their war stalled. Stagnant progress in the conflict drew concerns of persistently higher energy prices, which could contribute to prolonged inflation and tighter monetary policy.