Gold futures snapped a two-day gain to end lower on Wednesday, as the dollar trended higher against a select band of currencies after some encouraging data from the U.S. showed inflation to have risen marginally in September, even as investors anticipate a fresh round of stimulus from the European Central Bank.
Gold slipped after a report from the Labor Department showed consumer prices in the U.S. to have unexpectedly increased in September, with higher prices for food and shelter offsetting a continued decline in energy prices.
Markets expect the ECB to soon embark on full-scale quantitative easing, no longer able to downplay the threat of a dangerous deflationary spiral.
The situation in Europe may prove even more dire with the results of bank stress tests this weekend. Spanish news agency Efe reported that banks from six euro zone countries are set to fail the tests, with the results due on Sunday.
Meanwhile, despite recent fairly upbeat U.S. economic data, the Federal Reserve is no longer expected to hike interest rates early next year. Recent speeches from Fed officials indicate the central bank may delay the end of its asset purchase program until at least the summer of 2015.
In addition to expectations of ultra-easy monetary policy in the U.S. and Europe, concerns about the global economy remain after Chinese growth slowed a bit to the worst in five years.
Gold for December delivery, the most actively traded contract, dropped 6.20 or 0.5 percent to settle at $1,245.50 an ounce on the Comex division of the New York Mercantile Exchange on Wednesday.
Gold for December delivery scaled an intraday high of $1,250.20 and a low of $1,241.60 an ounce.
On Tuesday, gold futures ended up $7.00 or 0.6 percent at $1,251.70 an ounce, after rising to $1,255.60, the highest level in six weeks.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, remained unchanged at 751.96 ton on Wednesday, from its previous close of 760.93 tons.
The dollar index, which tracks the U.S. unit against six major currencies, traded at 85.64 on Wednesday, up from its previous close of 85.40 late Tuesday in North American trade. The dollar scaled a high of 85.75 intraday and a low of 84.23.
The euro trended lower against the dollar at $1.2662 on Wednesday, as compared to its previous close of $1.2716 late Tuesday in North American trade. The euro scaled a high of $1.2740 intraday and a low of $1.2648.
In economic news, consumer prices in the U.S. unexpectedly increased modestly in September, with higher prices for food and shelter offsetting a continued decline in energy prices, a Labor Department report said Wednesday. The Labor Department said its consumer price index edged up 0.1 percent in September following a 0.2 percent drop in August. Economists expected prices to come in unchanged.
In Europe, Bank of England policymakers decided to leave its key rate at a historic low of 0.50 percent in a split vote for the third straight time at the meeting held early this month as a majority of members noticed increased risks from slowing global economy, especially in euro area.
Meanwhile, incoming President of the EU executive Jean-Claude Juncker said he plans to present a EUR 300 billion investment package to bolster growth and create employment.
"If you give us your support today, we will present the jobs, growth and investment package before Christmas," Juncker told the European Parliament in Strasbourg.
