Gold fell the most in almost a month after U.S. inflation data came in hotter than expected, maintaining pressure on the Federal Reserve to keep aggressively raising rates.
The consumer price index rose 0.1% in August from the month before, surprising the market after the median economist forecast pointed to a small decline.
The dollar and Treasury yields surged following the report, causing gold to drop as much as 1.6%, the most since Aug. 15.
The CPI report will keep the Fed on a hawkish track ahead of its meeting next week.
Officials were signaling that another 75 basis-point tightening was likely despite inflation moderating earlier in the summer, and the swaps market is now fully pricing in the supersized hike.
“A shockingly hot inflation report pulled the rug for gold as investors are now starting to price in more Fed tightening. A 75-basis-point rate increase is a done deal for September and it is starting to look like we might not see a downshift in November,” said Ed Moya, senior market analyst at Oanda.
Gold fell 1.1% to $1,706.18 an ounce at 9:42 a.m. in New York, after slumping as much as 1.6% earlier.
The Bloomberg Dollar Spot Index rose 0.7% after falling 0.4% on Monday. Spot silver, platinum and palladium also fell.
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