LONDON: Gold prices rose 1percent on Tuesday but expectations of tighter monetary policy by the Federal Reserve driven by rising concerns of inflation kept bullion near a more-than-seven-week low hit in the previous session.
Spot gold was up 1.1percent at USD4,157.39 per ounce as of 9:30 a.m. ET (1330 GMT).
The session low for Tuesday was USD4,112.97, just over USD2 above the more than seven month-low of USD4,110.55 hit on Monday. US gold futures gained 0.5percent to USD4,189.60.
Today’s move is “just a correction from yesterday’s losses. I still think there’s some fairly significant headwinds for gold out there,” said Peter Grant, vice president and senior metals strategist at Zaner Metals.
Gold fell nearly 4percent in the previous session, and was at its lowest level since August 5, pressured by a higher dollar, Treasury yields, energy prices, and inflationary concerns that reinforced rate hike expectations.
“The heightened expectations for more Fed rate hikes are keeping the dollar up, yields remain elevated. I think the upside might be somewhat limited today and market’s going to stay focused on the PCE inflation data tomorrow and the jobs data on Friday,” Grant said. The dollar rose, testing several-month highs, underpinned by volatile oil prices and a recent rapid climb in Treasury yields.
A higher dollar makes greenback-priced bullion more expensive for overseas buyers, while higher Treasury yields increase the opportunity cost of non-yielding gold.
Rising energy prices, meanwhile, can feed into inflation and force central banks to keep interest rates higher to combat price pressures.
Gold is traditionally considered an inflation hedge, but tends to lose its appeal to yield-bearing assets in a high-interest-rate environment.
Markets currently see a 70percent probability of a Fed rate hike in October and a 95percent chance of an increase in December, according to the CME’s FedWatch Tool.
Investors await key economic data, including ADP employment and the PCE data due on Wednesday, and non-farm payrolls on Friday. Among other metals, spot silver eased 0.1percent to USD60.89, platinum slipped 1.9percent to USD1,684.95, while palladium lost 0.3percent to USD1,210.70.
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