Investing.com - Gold prices extended overnight gains in North American trade on Tuesday, as disappointing U.S. inflation data tempered expectations of a near-term interest rate hike by the Federal Reserve, weighing on the dollar.
The U.S. Commerce Department said that consumer prices were unchanged in July from a month earlier, compared to expectations for a 0.1% gain. CPI, excluding the volatile food and energy components, inched up 0.1%. In the 12 months through July, core CPI rose 2.2%.
At the same time, the Commerce Department said housing starts climbed 2.1% last month to an annual pace of 1.21 million, while building permits dipped 0.1% to 1.15 million.
The disappointing report led investors to push back expectations for the next U.S. rate hike. Fed funds futures are currently pricing in just a 9% chance of a rate hike by September. December odds were at around 42%.
Gold is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-yielding assets such as bullion. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, slumped to a seven-week low of 94.38. It was last at 94.80, down 0.8% on the day.
Dollar weakness usually benefits gold, as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.
Gold for December delivery on the Comex division of the New York Mercantile Exchange was up $7.45, or 0.55%, to trade at $1,355.00 a troy ounce by 12:42GMT, or 8:42AM ET.
A day earlier, gold tacked on $4.30, or 0.32%, after data showed the New York Federal Reserve’s index of manufacturing conditions unexpectedly contracted in August, raising concerns about the strength of third-quarter economic growth.
The yellow metal flirted with a more than two-year high above the $1,370-level earlier this month before coming under pressure as a robust U.S. employment report revived speculation of a U.S. interest rate hike in the coming months.
But those hopes were dashed following the release of a recent string of unexpectedly weak data, including retail sales and nonfarm productivity.
For the year, the precious metal is up nearly 26%, boosted by concerns over global growth and expectations of monetary stimulus.