Gold rebounds as focus returns to inflation risks

Gold gained about 1% on Tuesday, bouncing off a one-month low touched in the last session, as focus returned to prospects of inflation driven by more US fiscal stimulus under President-elect Joe Biden.

Spot gold was up 0.9% at $1,861.61 per ounce at 1010 GMT. On Monday, prices touched their lowest level since Dec. 2. US gold futures gained 0.6% to $1,861.80.

"It's quite clear that the money markets are factoring a very sizeable fiscal stimulus spend from the Democrats, some bounce in inflation," said Ross Norman, an independent analyst.

"So gold initially traded lower on those triggers - dollar and Treasury yields (rising) - now it's trading a little higher on anticipation of some inflation to come."

US President-elect Joe Biden said Americans needed more economic relief from the COVID-19 pandemic now and that he would deliver a plan costing "trillions" of dollars.

Gold has generally been seen as a hedge against the inflation and currency debasement that could result from widespread stimulus, especially last year. However higher bond yields have challenged that status recently as they increase the opportunity cost of holding non-interest-yielding bullion.

"The macro picture is still positive for gold," said Nicholas Frappell, global general manager at ABC Bullion , adding that gold was still vulnerable in the short term to dollar sentiment and yields.

The dollar index rebounded from a near three-year low reached last week when benchmark 10-year US Treasury yields topped 1% for the first time since March.

Silver gained 2.4% to $25.53 an ounce. Platinum climbed 3% to $1,061.92, while palladium was up 0.4% at $2,382.15.