Gold held its ground on Thursday near three-week lows ahead of an interest rate decision by the European Central Bank as well as U.S. economic data that could provide clues on the monetary policy outlook.
Spot gold was flat at $1,906.29 per ounce, after touching its lowest level since Aug. 25 at $1,904.93. U.S. gold futures fell 0.3% to $1,927.60.
“Gold bulls are waiting for clear signals that inflation is being stamped out so the discussion around when rate cuts are going to come can actually begin, but the problem is we’re just not at that stage yet,” said Craig Erlam, senior markets analyst at OANDA.
Data on Wednesday showed U.S. consumer prices increased by the most in 14 months in August, but the annual rise in underlying inflation was the smallest in nearly two years.
Federal Reserve officials got some evidence of a decline in inflation and a slowing economy, but likely not enough to downplay the possible need for further rate increases later this year.
“The concern is obviously that the more resilient the economy is, the longer interest rates will remain high, and the more punishing it’ll be over time,” Erlam said.
Higher interest rates dull the appeal of bullion, which bears no interest, and lift returns on competing safe-haven bonds.
Traders now expect a 97% chance of the Fed leaving rates unchanged next Wednesday, with a 46% probability of another rate hike before 2024, according to the CME’s FedWatch Tool.
Markets also looked to the European Central Bank’s decision on whether to raise interest rates to a record peak, while U.S. retail sales and producer price index data were expected.