Gold drops after sharp gains as inflation concerns come to the fore

NEW YORK: Gold prices fell on Thursday as traders took profits from the previous session’s gains and focused on the risk of higher inflation, underlined by a rise in oil prices.

Spot gold slipped 0.8percent to USD4,484.95 per ounce by 09:53 a.m. EDT (1353 GMT), retreating from its highest since June 2, a level hit earlier in the session. US gold futures edged 0.1percent lower to USD4,539.50.

Gold had leapt by over 4percent on Wednesday, while the US dollar and bond yields dropped sharply after the Treasury’s announcement it would increase buybacks of longer-dated bonds. “Gold has come under routine profit-taking pressure following the previous session’s strong gains,” said Jim Wyckoff, a market analyst at American Gold Exchange. He added that somewhat hawkish Federal Reserve minutes and higher oil prices, which have revived inflation concerns, had also undermined gold.

Although investors often regard gold as a safeguard against inflation, higher interest rates can curb demand by increasing the opportunity cost of holding a non-yielding asset. Minutes from the Fed’s July meeting released on Wednesday highlighted some policymakers’ concerns about inflation and showed that several officials remained open to further rate hikes.

Traders price in a 67.4percent chance of a Fed hold in September, according to the CME FedWatch Tool. Oil prices extended their rally to a three-week high as stalled talks over the Iran conflict sustained market concerns about Middle East supply disruptions. “With our US economists expecting the Fed to remain on hold, we see scope for gold to exceed USD5,000/oz in 2027, potentially earlier,” but with scope for volatility too, Morgan Stanley analysts said in a note. “A lower implied probability of Fed hikes has brought ETF inflows, while stronger central bank buying and a steepening yield curve are also providing support.”

Among other metals, spot silver rose 0.5percent to USD67.28 per ounce, platinum dropped 1.4percent to USD1,799.70, and palladium slid nearly 1percent to USD1,321.50.