Gold rises in Europe

Gold rose on Wednesday after data showing a surprise drop in US inflation last month dented expectations that the Federal Reserve will decide to increase interest rates for the first time in nearly a decade this week. The Labour Department said its consumer price index fell 0.1 percent last month, the first decline since January, pointing to tame inflation that complicates the Fed's decision whether to raise rates.
That helped gold to break out of the narrow range it has held ahead of the Fed's two-day policy meeting beginning on Wednesday, to its highest in nearly a week at $1,113.60. Spot gold was up 0.7 percent at $1,112.76 an ounce at 1332 GMT, while US gold futures for December delivery were up $9.40 an ounce at $1,112.00. Silver prices were up 2.2 percent at $14.71.
"CPI came in weaker than expected," Heraeus trader Alexander Zumpfe said. "Markets took that as a kind of confirmation that the Fed won't hike interest rates tomorrow, since there is no reason inflation-wise." A little over half the 80 economists polled by Reuters over the last 24 hours said they expect the Fed to hold fire slightly longer on a rate rise, after only last week narrowly predicting the Fed would pull the trigger on Thursday.
A hike is expected to pressure gold as low rates cut the opportunity cost of holding non-yielding bullion, while restraining the dollar, in which it is priced. Prices are down 6 percent this year on expectations that a rise is imminent. "I see three options: no change, rate hike with a hawkish statement or rate hike with a dovish statement," Saxo Bank's head of commodity research Ole Hansen said.
"The first two will be gold-negative while the last (which is my preferred option) could trigger a recovery as it removes the uncertainty and should keep the dollar from rising too fast." European shares were up 1.5 percent on Wednesday, with the broader market underpinned by overnight gains on Wall Street and in Asia, while the dollar held steady against the euro in choppy trade.
On the physical gold markets, prices in India were at a discount of about $5 an ounce to the global benchmark due to sluggish demand, dealers said. In China, however, they were at a premium of about $5 an ounce on the Shanghai Gold Exchange, indicating good buying interest. Platinum was up 0.5 percent at $961.74 an ounce and palladium was down 0.5 percent at $596.30 per ounce.