Gold drops 1% as markets assess Fed signals, await US inflation data

By Sukanya Mitra

Oct 29 (Reuters) - Gold prices fell 1% on Thursday as investors assessed signals from the Federal Reserve and Chair Kevin Warsh after policymakers left interest rates unchanged, while awaiting key US inflation data later in the day for further clues on the rate outlook.

Spot gold slid 1.1% to $4,024.22 per ounce by 0618 GMT, while US gold futures for December delivery dropped 0.4% to $4,035.90. Bullion is on track for its second straight monthly fall.

The FOMC outcome and Kevin Warsh's remarks triggered fresh bearish positioning in early Asian trade, said Kelvin Wong, a senior market analyst at OANDA.

The Fed held rates steady on Wednesday, in the 3.75%-4.00% range, as expected, opting to delay any changes to borrowing costs until after next week's US midterm elections while it awaits further data on inflation.

Traders are now pricing in about an 83% chance of a rate hike in December, according to the CME's FedWatch tool.

Higher interest rates increase the opportunity cost of holding non-yielding bullion, reducing its appeal.

Markets await Personal Consumption Expenditures data, the Fed's preferred inflation gauge, which is due at 1230 GMT.

On the geopolitical front, US Vice President JD Vance sent a letter to Iranian Security Council chief Mohsen Rezaei in a bid to revive peace negotiations, the Wall Street Journal reported on Wednesday. Oil prices fell on the news. O/R

Gold would remain under pressure in the absence of a clear resolution to the conflict in the Middle East, Wong added.

Elsewhere, China's net gold imports via Hong Kong in September rose more than 28% from August to a five-month high, Hong Kong Census and Statistics Department data showed on Wednesday.

Among other metals, spot silver fell 2.3% to $52.71 per ounce, platinum dropped 1.8% to $1,511.02 and palladium slid 0.5% to $1,006.03.