US gold futures closed with healthy gains on Wednesday after three US economic reports strengthened the view that the Federal Reserve would not need to raise interest rates to contain inflation and undermined the dollar, traders said.
"Generally, it was the weaker dollar and the reason for that was the weaker CPI number and the weaker housing starts," said one trader.
The dollar slid for a second straight session primarily on subdued US inflation readings. On Wednesday, the core reading in the July consumer price index came in softer then forecast.
December delivery gold was up $6.10 an ounce at $639.00 an ounce on the New York Mercantile Exchange's Comex division.
Though off the session high of $643.00, it was well up from the low of $632.10. Comex estimated final volume at 35,000 lots, down from Tuesday's volume of 40,043 lots.
The July US consumer inflation report strengthened the notion the Fed would not need to resume a credit-tightening stance at it's September meeting.
The core inflation rate, which excludes food and energy prices, came in below forecasts. A weaker dollar often boosts sales of dollar-denominated assets like gold in overseas markets.
The dollar continued its decline when other reports showed the pace of US home building and industrial production both fell more than expected in July.
"This all suggests that the Fed may not be raising interest rates again, while comments abroad suggest that other central banks will hike rates further," said David Durance, chief strategist at Julius Bear Investment Management in New York.
With technical factors directing much of the recent gold trade, some traders noted that support levels held on Tuesday's downdraft which they considered a bullish sign.
"We've been in a wide range from $643 down to $630.
But today we went up because the recent selling dried up, along with the weaker-than-expected CPI number. People tried to push it higher, there were a lot of longs in the market, the mood in the market was positive," said one gold dealer.
Chart watchers noted that support at $630 per ounce held on Tuesday, but gold also failed to surpass on Monday's $643 high.
"Once the market understood that we weren't going to break that high today, there was some long liquidation and that's why we closed $5 off the high," the dealer said.
Gold traders largely ignored the decline in oil, which fell over $1 to $72 a barrel after weekly inventory data showed supplies in line with expectations.
Spot gold advanced to $627.0/7.80 an ounce late in New York trade, up from $623.60/624.40 an ounce on Tuesday.
On Wednesday's late bullion fix in London was $629.75.
Silver also charged higher on the dollar's decline.
Comex September silver finished with strong gains of 20.0 cents at $12.2850 an ounce, and set a one-week peak at $12.44, up from a low at $12.07 an ounce.
Spot silver was quoted firmer at $12.25/12.35 an ounce in late New York trade compared with $12.01/2.11 late on Tuesday.
Silver was fixed at $12.15 an ounce. Nymex October platinum was up $9.60 by the end at $1,251 an ounce. Spot platinum rose to $1,238/1,243.
September palladium gained $11.70 to $336.40 an ounce. Spot palladium edged off the day's highs to close at $331/335 an ounce.