September 14, 2017 / 10:14 AM / 10 days ago

PRECIOUS-Gold steadies above two-week low despite U.S. inflation rise

    * Gasoline, rents boost U.S. consumer inflation
    * Dollar holds losses after inflation data
    * GRAPHIC-2017 asset returns: tmsnrt.rs/2jvdmXl

 (Adds U.S. data, updates prices)
    By Jan Harvey
    LONDON, Sept 14 (Reuters) - Gold steadied above an earlier
two-week low on Thursday as the dollar softened despite strong
U.S. consumer inflation data, which could allow further interest
rate increases from the Federal Reserve. 
    The U.S. currency was down 0.2 percent against a basket of
currencies, having posted its biggest one-day rise in six weeks
on Wednesday.       
    The dollar was weaker even though data showed U.S. consumer
prices accelerated in August amid a jump in the cost of gasoline
and rental accommodation, signs of firming inflation that could
allow further monetary policy tightening.             
    Spot gold        was up 0.2 percent at $1,324.86 an ounce at
1340 GMT, above an earlier low of $1,315.71, its weakest since
Aug. 31. 
    U.S. gold futures        for December delivery added 0.02
percent to $1,328.20. 
    With short positioning in the dollar near record levels, any
signs that U.S. inflation is picking up could support the case
for another rate increase and send the U.S. currency
significantly higher, analysts said.
    "We still expect the Fed to hike rates in December, which
the market doesn't. That is part of our bullish view on the
dollar and in turn our more cautious view on gold," Julius Baer
analyst Carsten Menke said. 
    The Fed has a 2 percent inflation target, and a series of
subdued inflation readings have dampened expectations for
further rate rises in the near term. 
    Although in the longer run a more inflationary environment
could support gold demand, both a stronger dollar and higher
rates would probably weigh on the metal in the near term. 
    "Any uptick in U.S. inflation would be driven by a
tightening labour market and a solid economic backdrop, and
should be accompanied by rising interest rates by the Fed,"
Menke said. "This shouldn't have a positive impact on gold."
    Spot prices hit their highest in more than a year last week
at $1,357.54 an ounce on the back of a softer dollar and
concerns over North Korea's nuclear ambitions, which knocked
stocks sharply lower.
    Equities, which have since recovered, retreated again on
Thursday ahead of the U.S. inflation numbers, and after weaker
than expected Chinese fixed-asset investment, factory output and
retail sales data - taking some pressure off gold.            
    Trading volumes in the metal were largely thin in Asia
overnight, MKS said in a note, as traders awaited the U.S.
inflation report.
    "As we have become accustomed to seeing in recent days,
bullion was broadly supported by underlying interest out of
China, however unable to make any further headway higher," it
said.
    Silver        was down 0.2 percent at $17.69 an ounce, while
platinum        was up 0.5 percent at $982.30 an ounce and
palladium        was 0.7 percent lower at $930.50.

 (Additional reporting by Eric Onstad in London and Apeksha Nair
in Bengaluru; Editing by David Clarke and Mark Potter)
  

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