Gold steadies as inflation fears, dollar dip counter 'taper' talk

Gold prices steadied on Thursday, as the dollar drifted lower and on fears of rising inflation, offsetting pressure for bullion from 'tapering' talks from the US Federal Reserve.

Spot gold was little changed at $1,869.14 per ounce by 1219 GMT. US gold futures fell 0.6% to $1,869.30.

Fed minutes published on Wednesday showed "a number" of officials thought that if the recovery holds up, it might be appropriate to "begin discussing a plan for adjusting the pace of asset purchases".

Chatter about tapering has impacted the sentiment in gold markets, said ABN Amro analyst Georgette Boele.

"Now we are at crucial resistance levels from a technical point of view ... We still expect a higher dollar and modestly higher real yields, which should push gold lower again."

Gold prices hit their highest since Jan. 8 on Wednesday, but pared most of the gains as the dollar index bounced off from a near three-month low and benchmark US Treasury yields jumped after the Fed minutes were released.

But the dollar has since pared some of these gains, supporting gold by making it less expensive for those holding other currencies.

An eventual monetary tightening by the Fed will take the sheen off bullion's appeal as it translates into a higher opportunity cost of holding the non-yielding asset.

"As inflation fears are building, that's not necessarily positive for gold because it also implies that long-term government bond yields are rising, and therefore the opportunity costs from holding gold will rise," said Quantitative Commodity Research analyst Peter Fertig.

So for gold to rise, it would require both building inflation expectations coupled with declining real yields, Fertig added.

Elsewhere, palladium was up 0.04% to $2,869.69 per ounce, silver was down 0.04% to $27.74, while platinum climbed 0.9% to $1,201.30.