Gold climbs over 1% as cooling US inflation boosts Fed pause bets

Gold prices jumped more than 1 per cent on Wednesday after signs of cooling inflation in the United States boosted hopes that the Federal Reserve could hit the brakes on its interest rate hike cycle sooner than previously thought.

Spot gold was up 1.3 per cent at $1,957.32 per ounce by 02:21 p.m. ET (1821 GMT), while U.S. gold futures settled 1.3 per cent higher at $1,961.70.

U.S. consumer prices rose modestly in June and registered their smallest annual increase in more than two years as inflation continued to subside. In the 12 months through June, the CPI advanced 3.0 per cent, compared with Reuters estimates of 3.1 per cent.

"Gold gapped $10 higher on the softer-than-expected CPI print on hopes that a July hike might be the last one of the cycle," said Tai Wong, a New York-based independent metals trader.

"If gold can break above the 50-day moving average at $1,960, it will trigger more bullish bets."

The dollar tumbled 1 per cent to a more than one-year low against major peers after the U.S. inflation print, making gold more attractive for other currency holders. Benchmark 10-year U.S. note yields dropped to 3.8770 per cent.

Inflation is slowing fast enough to allow the Fed to stop tightening U.S. monetary policy after what is still widely expected to be an interest rate hike at its meeting in two weeks time, traders bet on Wednesday.

Markets see a 91 per cent chance of a 25-basis point Fed rate hike later this month. Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion.

Earlier this week, several U.S. central bank officials said that the end to the Fed's current monetary policy tightening cycle is getting close.

Spot silver climbed 4.4 per cent to $24.11 per ounce, its highest since June 19. Platinum rose 2.9 per cent to $950.98 and palladium gained 2.4 per cent to $1,281.23.