Gold steadied near a more than two-month high on Thursday as traders paused after a rally fuelled by cooling U.S. inflation, with attention turning to an upcoming producer price report for clues to prospects of near-term Federal Reserve rate hikes.
Spot gold was little changed at $4,408.55 per ounce by 0336 GMT, after jumping about 1% earlier to its highest since June 5. U.S. gold futures for December delivery were steady at $4,467.
"Gold is in consolidation mode today after its post-CPI gains, with near-term expectations of a Fed rate hike being dialled back another notch," said Tim Waterer, chief market analyst at KCM Trade.
"Traders appear content to wait for confirmation from the upcoming PPI data before committing to the next leg higher."
Fed policymakers are likely to feel little fresh urgency to raise interest rates next month after data on Wednesday showed inflation cooled on a year-over-year basis for a second straight month.
The Consumer Price Index rose 3.4% in the 12 months through July, down from 3.5% in June, the Bureau of Labor Statistics reported, in line with economists' expectations.
Traders are now pricing in only a 40% chance of an interest rate hike at the Fed's September meeting, down from about 54% seen a week before, according to the CME FedWatch Tool. FEDWATCH/
Expectations of lower rates tend to support gold by lowering the opportunity cost of holding the non-yielding asset.
Attention now shifts to the Producer Price Index (PPI), due later in the day, for confirmation that price pressures are moderating.
On the geopolitical front, Iran and the United States remain at loggerheads over efforts to agree on a permanent end to the war in the Gulf, according to a senior Iranian source, who said there had been no progress in talks to revive the interim deal agreed in June.
In other metals, spot silver gained about 0.3% to $65.47 per ounce, having climbed to its highest since June 22 in the previous session.
Platinum lost 0.4% at $1,749.70, and palladium fell 0.5% at $1,362.10.
