Gold Holds Near 4,400 Dollars as United States Inflation Slows to 3.4 Percent

The July consumer price index (CPI) rose 0.1 percent on the month and 3.4 percent from a year earlier, down a tenth from June, CNBC reported. Stripping out food and energy, core prices rose 0.2 percent and the annual core rate slowed to 2.5 percent. Headline inflation still sits well above the Federal Reserve's 2 percent objective, and the energy shock that drove prices earlier this year has moderated rather than reversed.

Investors treated the report as confirmation that the Federal Reserve will not raise rates aggressively while price growth slows. Gold held above 4,400 dollars an ounce during the week, and USAGOLD's daily report put physical gold at 4,365 dollars late Friday after investors sold to lock in gains, with silver easing to around 64 dollars from above 65. Both metals have spent the year responding to the same basic calculation: a policy rate of 3.5 to 3.75 percent against headline inflation of 3.4 percent leaves almost no real return on cash, which removes the main cost of holding an asset that pays nothing.

The direction of the rate debate has reversed. According to the CME Group's FedWatch gauge, which tracks trader bets on the Federal Reserve's next move, traders assign roughly 62 percent probability to the Federal Reserve holding its target range in September and about 38 percent to a quarter-point increase. The question investors are weighing is not how fast the central bank will cut rates but whether it will raise them, a reversal of the easing expectations that prevailed a year ago.

Equities finished the week higher, though the gains were modest. The S&P 500 slipped 0.2 percent on Friday to 7,785.76 after closing higher the previous session, the Dow Jones Industrial Average fell 107.58 points to 53,732.41, and the Nasdaq Composite lost 0.3 percent to 26,729.16. All three still recorded a third consecutive weekly advance. Consumer sentiment was the exception: a preliminary August reading of the University of Michigan's consumer sentiment survey showed households growing more pessimistic, with prices cited as the leading concern. Currency markets face a related pressure. Japan and the United States confirmed a coordinated intervention in early August to stop the yen from weakening further, and the yen has since weakened again, erasing roughly half of that gain.