PRECIOUS-Gold climbs on dip-buying, Fed rate hike bets rise after US inflation data

Gold prices firmed over 1% on Friday, rebounding from recent losses and finding a short-term floor despite strong U.S. inflation data bolstering expectations of an interest rate hike by the Federal Reserve next week.

Spot gold XAU= rose 1.2% to $4,366.69 per ounce by 11:22 a.m. EDT (1522 GMT). The metal, however, was down about 1.4% for the week so far.

“Gold is recovering rapidly after a brief dip, as CPI data may be cementing expectations of a Fed rate hike next week. The volatility is somewhat muted, as market had a hike 70% priced in,” said Tai Wong, an independent metals trader.

“Price action here suggests that gold is finding a short-term base after the recent retreat.”

U.S. gold futures GCcv1 gained 0.1% to $4,409.30.

Prices fell nearly 2% on Thursday after the U.S. Producer Price Index data showed prices increased in line with expectations in August.

The Consumer Price Index increased 0.4% last month after edging up 0.1% in July, the labor department's Bureau of Labor Statistics said on Friday.

Oil prices fell on Friday, but remained on course for a weekly gain. Higher oil prices stoke inflation fears, strengthening rate-hike bets. While gold is typically seen as an inflation hedge, higher interest rates diminish the appeal of non-yielding bullion.

Traders are pricing in an 87% chance of a rate hike at the Fed's policy meeting next week, up from 67% before the inflation data, according to the CME FedWatch Tool.

Gold demand in India was subdued this week as volatile prices discouraged buyers, while investment demand remained strong in top consumer China.