Gold Prices Rise Slightly After Drop Caused by US Inflation Data

Gold prices went up by 0.2 percent to reach $4,039.07 per ounce during early Asian trade on Wednesday. This small rise comes after a sharp drop of nearly 3 percent in the previous trading session. That earlier drop happened because of new US inflation numbers that showed stronger price growth than expected. The inflation data has now raised market expectations that the Federal Reserve will increase interest rates next month. Traders currently think there is a full 100 percent chance that an interest rate hike will happen in December.

Context

When inflation runs higher than expected, central banks often raise interest rates to cool down the economy and control rising prices. Higher interest rates make safe investments like bonds more attractive, which usually causes the price of gold to fall because gold does not pay any interest. Traders watch US economic data closely because decisions made by the Federal Reserve heavily impact global currency and commodity markets.