Gold at 3-week low as strong US data lifts dollar, yields

By Harshit Verma

(Reuters) - Gold prices held near a three-week low on Thursday after higher-than-expected U.S. producer prices and retail sales data raised worries U.S. interest rates are likely to stay higher for longer, boosting the dollar and bond yields.

Spot gold rose 0.1% to $1,909.05 per ounce by 1:47 p.m. EDT (1747 GMT), after touching $1,900.81, its lowest since Aug. 23. U.S. gold futures settled little changed at $1,932.80.

"We saw some headline inflationary data that was hotter than expected and as a result, we are seeing yields tick higher once again and continue to pressure the spot gold market," said David Meger, director of metals trading at High Ridge Futures.

Data showed U.S. producer prices increased by 0.7% in August, the most in more than a year, while U.S. retail sales increased by 0.6% over Reuters' expectation of 0.2% during the same period.

The U.S. dollar index jumped 0.6% to over six-month high, reducing gold's appeal for overseas investors, and the yield on the benchmark 10-year note also ticked higher.

"There are concerns the Fed does have the possibility of continuing to raise interest rates or yields continue to rise and that does apply some pressure to the gold market," Meger said.

Although markets are pricing in that the Fed would hold rates unchanged at their policy meeting next week, there's a 39% probability of a rate rise in November, according to the CME's FedWatch Tool.

Higher interest rates dull the appeal of bullion, which bears no interest.

Earlier in the day, The European Central Bank raised its key interest rate to a record high of 4% on Thursday, but signalled this was likely to be its final move.

However, the $1,900 level for gold is fairly well-supported and will attract some bargain hunting, analysts said.

Silver fell 0.8% to $22.66 per ounce after hitting a four-week low, while platinum rose 0.6% to $905.87.

Palladium fell 1% to $1,246.10, after touching a three-week peak.

(Reporting by Harshit Verma in Bengaluru; additional reporting by Brijesh Patel; editing by David Evans and Krishna Chandra Eluri)