Gold gains as cooler US inflation data counters higher Treasury yields

By Pablo Sinha

Oct 1 (Reuters) - Gold prices rose on Thursday, helped by a softer-than-expected US inflation report that lowered expectations of a Federal Reserve rate hike in October, although rising Treasury yields and a strong dollar limited further gains.

Spot gold was up 0.6% to $4,183.22 per ounce by 1151 GMT. US gold futures for December delivery rose 0.6% to $4,212.80. The metal fell over 6% in September.

The 10-year Treasury yields scaled their highest level in more than two decades, raising the opportunity cost of holding gold, while a stronger dollar made greenback-priced bullion more expensive for holders of other currencies. US/ USD/

"Yesterday's inflation numbers were helpful for gold in the sense that they weren't as strong as the market had expected and therefore helped dial down some of the expectations for rate hikes," said Nitesh Shah, commodity strategist at WisdomTree.

"This bond market volatility does seem to point to gold being possibly a better anti-fragile hedge. And I could see more interest in gold as a result of its role as an instrument of stability in terms of uncertainty and chaos."

Data on Wednesday showed US inflation rose less than expected in August, while price pressures were revised lower for the prior month.

The data reduced expectations of a rate hike in October, with markets pricing in a 37% chance, down from 45% before the release. Traders, however, still see an 89% probability of an increase in December.

In focus now is the September US nonfarm payrolls report, due on Friday, as well as remarks from Fed policymakers for clues on monetary policy.

Iran said on Wednesday it had received a US response to its latest proposal to resurrect the ceasefire in the Iran war, days after US President Donald Trump said he had rejected it.

Spot silver rose 1.2% to $61.11, platinum gained 1% to $1,723.69 and palladium dipped 0.7% to $1,195.80.