On Tuesday, gold prices jumped as the dollar fell, as investors awaited U.S. inflation data that might influence the Federal Reserve’s next moves in its monetary policy plans.
As of 0305 GMT, spot gold was up 0.2% at $1,857.22 per ounce after plunging to its lowest level since early January the previous session. Gold futures in the United States climbed 0.3% to $1,868.40.
Rising interest rates increase the opportunity cost of owning gold, which is a non-yielding asset.
“If the disinflation trend in the U.S. shows signs of slowing (even if it’s temporary), then caution over a hawkish Fed could undermine risk sentiment and gold, while USD may find further support,” said OCBC FX strategist Christopher Wong.
Investors are looking forward to the release of January’s consumer price index (CPI) statistics in the United States later today. According to Reuters’ polled economists, the headline CPI data will rise 0.5% month over month.
However, if the CPI comes in lower-than-expected, the Fed could conceivably afford to postpone rate rises, implying “a return of USD weakness and a gold bounce,” Wong added.
Several Fed members have lately indicated that more interest rate rises are required to bring inflation down to the Fed’s 2% objective.
The Fed’s target rate is expected to peak at 5.193% in July, up from a current range of 4.5% to 4.75%.
“Bullion traders are trying to anticipate the Fed’s next move, with indications that the Fed may need to stay hawkish for longer,” analysts at ANZ said in a note.
“Nevertheless, we expect a weaker USD will remain on a downward trajectory for the rest of the year, putting upward pressure on the precious metal.”
The dollar index fell 0.1%, making gold priced in greenbacks less costly for purchasers holding foreign currencies.
Spot silver was unchanged at $21.96 per ounce, platinum was down 0.1% at $952.42, and palladium was up 0.3% at $1,570.94.
