Gold eases as US inflation data fans fears of sharp rate hikes

Oct 14 (Reuters) – Gold prices fell on Thursday as a higher-than-expected rise in US September inflation cemented bets the Federal Reserve will persist with aggressive interest rate hikes.

Spot gold dropped 0.3% to USD 1,666.77 per ounce by 12:42 p.m. EDT (1642 GMT). US gold futures settled almost flat at USD 1,677.00.

The US consumer price index (CPI) rose 0.4% last month after gaining 0.1% in August, the Labor Department said. In the 12 months through September, the CPI rose 8.2% after gaining 8.3% in August.

The data signals the Fed will be more aggressive in fighting inflation by raising interest rates at a faster pace, pressuring gold, said David Meger, director of metals trading at High Ridge Futures.

Following the data, benchmark US 10-year Treasury yields climbed. Higher interest rates and bond yields lower the appeal of non-yielding gold.

“There was some optimism going into the report that we had seen consumer prices abate and with the news coming out that was not the case, we saw the obvious result of that,” Meger said.

Traders of US interest-rate futures had all but priced in a fourth straight 75-basis-point hike at the close of the Fed’s Nov. 1-2 meeting, after the inflation data they began pricing about a one-in-10 chance of a full percentage-point rate hike next month.

Fed officials reiterating their aggressively hawkish stance on monetary policy has kept the market uneasy due to fears of a “pending US and/or global recession,” Jim Wyckoff, senior analyst at Kitco Metals, said in a note.

“Today’s CPI report suggests the Fed is correct regarding its belief that inflation is still not under control.”

Spot silver dropped 0.9% to USD 18.87 per ounce, platinum firmed 1.9% to USD 897.00, and palladium dipped 1.3% to USD 2,107.78.

(Reporting by Bharat Govind Gautam in Bengaluru; editing by Barbara Lewis and Vinay Dwivedi)