Gold jumps more than 3% as weaker dollar and US inflation data boost prices

Gold prices climbed during Thursday's trading, supported by a weaker US dollar and fresh economic data showing that US inflation slowed in line with expectations.

The gains came as investors scaled back their expectations for another Federal Reserve interest rate hike after Fed Chair Kevin Warsh offered only limited guidance on the outlook for inflation and monetary policy.

In trading, spot gold rose 3.4% to $4,173.90 per ounce, while US August gold futures gained 1.9% to $4,108.30 per ounce.

Weaker dollar

The US Dollar Index fell about 0.9% as the Japanese yen surged, with traders continuing to watch for a possible intervention by Japanese authorities to support the local currency.

A weaker dollar makes gold, which is priced in the US currency, less expensive for overseas buyers, helping to support demand.

Inflation data and the Fed

Gold prices showed little immediate reaction after data from the US Commerce Department revealed that the Personal Consumption Expenditures (PCE) Price Index fell 0.1% in June, matching market expectations.

However, investors believe the slowdown in inflation could prove temporary as renewed tensions in the Middle East and higher oil prices threaten to add fresh inflationary pressures.

On Wednesday, the Federal Reserve left interest rates unchanged at a range of 3.50% to 3.75%.

During his post-meeting press conference, Kevin Warsh reaffirmed the central bank's commitment to bringing inflation lower, but stopped short of providing a clear signal on its next policy move, leaving markets uncertain about the outlook.

According to CME Group's FedWatch Tool, markets are now pricing in a 57% probability of a 25-basis-point interest rate increase at the Federal Reserve's September 15-16 meeting, down from roughly 77% before the central bank's latest policy decision.

Higher interest rates typically weigh on gold because the precious metal does not generate a yield.