Gold prices fell on Monday, pressured by an uptick in U.S. Treasury yields as investor attention turned to U.S. inflation data this week that could strengthen the case for aggressive interest rate hikes by the Federal Reserve.
Spot gold was down 0.2% at $1,847.30 per ounce by 10:56 a.m. EDT (1456 GMT), while U.S. gold futures fell 0.1% to $1,848.30.
U.S. bond yields were higher in the run-up to data on Friday which is expected to show still high inflation. The dollar also firmed, making gold less appealing for overseas buyers.
Although gold is considered a hedge against inflation, higher interest rates to tame the rising price pressures dim the appetite for non-yielding bullion.
“If we do get a little bit of a hotter inflation report, gold will weaken … It is a kind of a wait-and-see approach as far as when will we find out how far the Fed will raise rates to control this inflation,” said Edward Moya, senior analyst with OANDA.
But the overall belief that inflation is decelerating and will continue to decelerate, along with the Fed policy being priced in, should provide some stability for gold prices, Moya added.
While the Fed is on track to deliver half-a-point interest rate hikes at its June and July policy meetings, a high inflation reading would add to expectations of aggressive tightening even in the second half of the year.
“Summer trading has officially begun, which suggest prices could remain range-bound near $1850/oz, but the set-up remains for additional liquidations on the horizon,” TD Securities said in a note.
Investors also await the European Central Bank meeting on Thursday.
Silver climbed 1.2% to $22.18 per ounce, palladium gained 1.5% to $2,006.04 and platinum rose 1.5% to $1,029.21.