Investing.com -- Gold ticked up on Tuesday, remaining near 28-month highs, as a key policymaker from the Federal Reserve hinted that a near-term interest rate hike could be possible even as inflationary pressures remain soft.
On the Comex division of the New York Mercantile Exchange, Gold for December delivery traded between $1,344.85 and $1,363.80 an ounce before settling at $1,356.35, up 8.75 or 0.67% on the session. Gold closed higher for the second straight session and the fourth time in the last six trading days. Since opening the year around $1,075 an ounce, the precious metal has soared more than 25% over the first seven months of 2016 and is on pace for one of its strongest years in the last three decades.
On Tuesday morning, the U.S. Bureau of Labor Statistics said its Consumer Price Index remained flat in July, in line with consensus forecasts, falling back slightly from a monthly gain of 0.2% in June. On an annual basis, consumer inflation rose by 0.8% from the previous 12 months, also slowing from June's yearly increase of 1.0%. It came as food prices remained flat and transportation experienced a slight contraction, offset by strength in medical and housing prices.
At the same time, Core CPI, which strips out volatile food and energy prices, rose by 0.1% in July, slightly below analysts' expectations for a 0.2% gain. Core Inflation increased by 2.2% on a year-over-year basis, also slowing from June's yearly gains of 2.3%. For the month, volatile energy prices declined by 1.6%. Despite strong signs of firming inflation at the start of the year, the Fed's long-term target for inflation still remains below its targeted objective.
Also on Tuesday, New York Fed president William Dudley jolted markets with hawkish comments on the likelihood that that the U.S. central bank could lift interest rates before the end of the year. Speaking exclusively with Fox Business, Dudley said the Fed is "getting closer" to that point when it "will be appropriate" to actually raise short-term rates. Following last December's historic interest rate hike, the Federal Open Market Committee (FOMC) has held the targeted range of its benchmark interest rate at its current level between 0.25 and 0.50% in each of its first five meetings this year.
The chances of a September rate hike from the CME Group's (NASDAQ:CME) Fed Watch tool doubled to 18% following Dudley's comments from around 9% during the previous session. In addition, the CME Group placed the probability of a December rate hike at 55.1%, up from around 41.9% in Monday's session. Any rate hikes by the Fed this year are viewed as bearish for Gold, which struggles to compete with high yield bearing assets in rising rate environments.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, crashed by more than 0.90% to an intraday low of 94.38, its lowest level since June 27. Since hitting a four-month high at 97.62 in late-July, the Dollar has retreated by more than 2%.
Dollar-denominated commodities such as Gold become more expensive for foreign purchasers when the dollar appreciates.
Silver for September delivery gained 0.030 or 0.15% to 19.880 an ounce.
Copper for September delivery added 0.021 or 0.95% to 2.172 a pound.