Gold prices edged higher on Tuesday as the dollar slipped, with investors positioning for a US inflation report that could influence the Federal Reserve’s interest rate strategy.
Spot gold was up 0.2% at $1,856.30 per ounce, as of 1141 GMT, after falling to its lowest since early January in the previous session.
US gold futures rose 0.2% to $1,866.40.
“Gold prices are seeing a modest rebound off 1-month lows as US yields and the dollar slip back ahead of this afternoon’s January CPI report,” said Michael Hewson, chief market analyst at CMC Markets.
“A strong CPI number could see further weakness in gold prices.”
January’s US consumer price index (CPI) data is due at 1330 GMT and a Reuters poll forecast the headline CPI figure to rise 0.5%.
The dollar index fell 0.4%, making greenback-priced bullion more affordable for buyers holding other currencies. Benchmark 10-year US Treasury yields dipped for the second straight session.
If the inflation rate turns out to be lower than expected, the market is likely to scale back its interest rate expectations, allowing the gold price to rise, analysts at Commerzbank said in a note.
Although bullion is considered an inflation hedge, it is highly sensitive to rising US interest rates, as they increase the opportunity cost of holding the zero-yield asset.
The Fed will need to continue to raise rates to get them to a level high enough to bring inflation back down to the central bank’s target rate, Fed Governor Michelle Bowman said on Monday.
Markets now expect Fed’s target rate to peak at 5.188% in July, from a current range of 4.5% to 4.75%.
Among other precious metals, spot silver was down 1.1% to $21.74 per ounce, platinum edged down 0.4% to $950.06, and palladium fell 0.4% to $1,559.82.
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