Gold rises over 1% as US inflation data dents rate hike bets

U.S. consumer inflation increased slightly in July, potentially weakening the argument for an interest rate hike from the Fed next month. It edged up 0.1% last month, on par with estimates, after dropping 0.4% in June.

"The CPI data has been encouraging. It was higher than last month, but it was in line with estimates, along with a weaker dollar and technicals which have all helped gold piggyback on it," Marex analyst Edward Meir said.

The U.S. dollar index slipped 0.1%, making dollar-priced bullion more affordable for buyers overseas.

Traders are now pricing in about a 38% chance of an interest rate hike at the Fed's September meeting, down from 46% before the inflation data, according to the CME FedWatch Tool.

The Fed on July 29 left the benchmark policy rate unchanged in the 3.50%-3.75% range, with three of the Fed's 12 voting policymakers dissenting in favor of a rate hike instead.

Attention now shifts to the Producer Price Index (PPI), due on Thursday.

Meanwhile, the U.S. and Yemen's Iran-aligned Houthis reported separate attacks on shipping on Tuesday as prospects for ending the Iran war appeared to dim.

"A resumption of the hostilities can make oil move back up towards the $100 mark, in which case you could see interest rates move up and gold could struggle," Meir said.

Among other metals, spot silver (XAG=) climbed 1.9% to $65.87 per ounce, having hit its highest level since June 22 earlier in the session.

Platinum (XPT=) rose 1.6% to $1,772.51, and palladium (XPD=) gained 1.5% to $1,380.75.

Gold rose more than 1% on Wednesday, supported by a softer dollar after a U.S. inflation reading matched expectations, bolstering bets that the Federal Reserve will keep rates on hold in September.