Gold rebounded from a two-week low on Thursday as North Korea threatened the United States and Japan, and the dollar softened despite strong U.S. consumer inflation data, which could allow further interest rate increases from the Federal Reserve.
A North Korean state agency threatened to use nuclear weapons to "sink" Japan and reduce the United States to "ashes and darkness" for supporting a U.N. Security Council resolution and sanctions over its latest nuclear test.
"These types of comments create a certain bid underneath the market," said Phillip Streible, senior commodities broker for RJO Futures in Chicago. "Dollar weakness is [also] giving it some strength."
Spot gold was up 0.31 percent at $1,326.8199 an ounce by 2:55 p.m. ET, above an earlier low of $1,315.71, its weakest since Aug. 31. U.S. gold futures for December delivery settled up 0.22 percent at $1,330.90.
Also supportive was Chinese bitcoin exchange BTCChina's announcement that it would stop all trading from Sept. 30.
"That's creating an asset allocation shift back into more traditional safety plays in the gold market," Streible said.
Gold retreats from 1-year high as North Korean fears ease 5:35 AM ET Mon, 11 Sept 2017 | 03:37
The U.S. dollar index fell 0.43 percent against a basket of currencies. The drop came despite data showing a faster-than-forecast increase in domestic consumer prices in August.
Firming inflation 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," 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.
With North Korea nuclear threat and hurricanes, gold will rise 6:59 AM ET Fri, 8 Sept 2017 | 01:23
Spot gold 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.
Silver was down 0.05 percent at $17.72 an ounce, while platinum was up 0.18 percent at $982.20 an ounce, after falling to the lowest since Aug. 28 at $971.50. Spot palladium was 1.31 percent lower at $924.70, after falling to the lowest since Aug. 18 at $914.