Gold inched higher on Wednesday as the
dollar pulled back, but gains were capped by expectations for an
aggressive Federal Reserve approach to U.S. inflation, which
rose unexpectedly last month.
Spot gold was up 0.1% at $1,702.50 per ounce by 1237
GMT, while U.S. gold futures eased 0.2% to $1,713.20.
While weakness in dollar is helping raise gold off its lows,
higher yields are likely to make it more difficult for prices to
make any meaningful gains in the short term, said Michael
Hewson, chief markets analyst at CMC Markets.
Gold prices in the previous session saw their biggest
one-day percentage fall since July 14, as the dollar logged its
best day since March 2020 after an unexpected rise in U.S.
August consumer prices.
“Tuesday’s decline was probably in some way an over
reaction. Of course gold is suffering from rising rates, but
market risks remains significant and gold is strongly holding
its safe haven asset role,” said Carlo Alberto De Casa, external
analyst for Kinesis Money.
The inflation data stoked expectations the Fed could raise
U.S. borrowing costs faster and further than previously
anticipated, with some even speculating there could be a
100-basis-point hike at the end of its Sept. 20-21 meeting.
Gold is seen as a hedge against inflation, but higher
interest rates increase the opportunity cost of holding it.
The dollar index eased 0.3% on Wednesday, making gold
less expensive for overseas buyers.
“The gold market sentiment just now appears vulnerable with
much attention focused upon key support at the $1,680 level, a
breach of which could see further substantial falls on stop-loss
selling,” said independent analyst Ross Norman.
Meanwhile investors also took stock of data showing U.S.
producer prices fell for second straight month in August.
Elsewhere, spot silver rose 0.9% to $19.49 per ounce,
platinum climbed 2.1% to $897.00, while palladium
eased 0.1% to $2,101.50.
(Reporting by Arundhati Sarkar in Bengaluru; editing by Vinay
Dwivedi and Jason Neely)