Gold price ticks up as dollar slips, US inflation data in investors' focus

By Arundhati Sarkar

(Reuters) - Gold prices rose on Monday as the dollar slipped, while investors awaited U.S. inflation data for further clues on the Federal Reserve's rate-hike trajectory.

Spot gold rose 0.6% to $1,725.70 per ounce by 1041 GMT. U.S. gold futures gained 0.5% to $1,736.90.

"The dollar has pulled off its highs and yields have stabilised, which is aiding the recovery we're seeing in gold," said Craig Erlam, senior market analyst at OANDA.

"We may be seeing traders position for a favourable U.S. inflation report tomorrow which could provide a bigger lift again if we see further softening," Erlam added.

The dollar index touched its lowest level since Aug. 26, making gold less expensive for overseas buyers. [USD/]

The U.S. Consumer Price Index, due on Tuesday, is expected to show that August prices rose at an 8.1% pace over the year, versus an 8.5% print for July. [USCPNY=ECI]

While gold is traditionally considered an inflation hedge, rate hikes translate into a higher opportunity cost for holding bullion, which pays no interest.

On the flip side, "gold's gains at the onset of this week should prove temporary if the incoming U.S. CPI prints point to a stubborn climb in inflation, forcing the Fed to keep the pedal to the metal with its policy tightening," said Han Tan, chief market analyst at Exinity.

"Data that underscores the Fed's need to stay ultra-aggressive in its battle against inflation, a theme that's been a constant thorn in gold bulls' side for much of this year, would only further weigh down the metal."

Markets have ramped up their expectations for a 75-basis-point Fed hike this month.

Spot silver rose 2.3% to $19.22 per ounce, its highest in more than two weeks.

Platinum and Palladium each gained 1% to $890.07 and $2,194.76, respectively.

 

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Edmund Klamann and Vinay Dwivedi)