Gold prices get reprieve as dollar slips, rate hike bets check advance

Gold edged up on Wednesday as the dollar pulled back, but gains were capped by bets for more aggressive Federal Reserve rate hikes fuelled by a surprise rise in U.S. inflation.

Spot gold rose 0.2% to $1,704.13 per ounce by 0936 GMT. U.S. gold futures eased 0.1% to $1,715.10.

While weakness in dollar is helping pull gold off its lows, higher yields are likely to make it more difficult for prices to make any meaningful gains in the short term, said Michael Hewson, chief markets analyst at CMC Markets. [US/]

Gold prices saw their biggest one-day percentage decline since July 14 in the previous session, as the dollar logged its best day since March 2020 after an unexpected rise in U.S. August consumer prices.

"Tuesday's decline was probably in some way an over reaction. Of course gold is suffering from rising rates, but market risks remains significant and gold is strongly holding its safe haven asset role," said Carlo Alberto De Casa, external analyst for Kinesis Money.

The inflation data stoked expectations the Fed could raise U.S. borrowing costs faster and further than previously anticipated, with some even speculating a 100-basis-point hike at the end of its Sept. 20-21 meeting.

Gold is seen as a hedge against inflation, but higher interest rates increase the opportunity cost of holding the asset.

The dollar index eased 0.4% on Wednesday, making gold less expensive for overseas buyers.

Meanwhile, world stocks were stuck in a sea of red as markets braced for a more aggressive Fed, and the yen jumped as Japan gave its strongest signal yet that it could act to shore up the battered currency. [MKTS/GLOB]

Spot silver rose 1% to $19.52 per ounce, platinum gained 1.9% to $895.57, and palladium added 0.3% to $2,111.33.

 

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