Gold prices rose on Tuesday, with persistent inflation worries keeping bullion’s appeal as a hedge against higher price levels intact despite a stronger U.S. dollar and elevated bond yields.
Spot gold rose 0.2% to $1,866.62 per ounce by 0519 GMT. U.S. gold futures were up 0.1% at $1,868.90.
Gold prices have rallied 1.8% since last Wednesday’s surge in U.S. consumer prices last month, despite the dollar hitting a 16-month high and 10-year Treasury yields also moving higher.
A stronger dollar makes gold more expensive for buyers holding other currencies, while higher yields increase the metal’s opportunity cost.
“Inflation has gotten so high that markets reason that the Fed will be more hawkish but still not hawkish enough, boosting the appeal of an inflation hedge like gold despite a higher dollar,” DailyFX currency strategist Ilya Spivak said. But the metal’s inability to rise substantially after Wednesday’s break-out could suggest a “knee jerk” reaction to elevated inflation that does not have lasting follow through, Spivak said, adding, gold could trend lower in the longer-term.
Market participants now eye U.S. retail sales data due at 1330 GMT which follows a surprisingly weak consumer sentiment reading last week.
Rate hikes tend to weigh on gold, as higher interest rates raise the non-yielding metal’s opportunity cost.
Tightening monetary policy now to rein in inflation could choke off the euro zone’s recovery, European Central Bank President Christine Lagarde said on Monday, pushing back on calls and market bets for tighter policy.
“Physical demand is also encouraging, with China imports averaging 25 tonnes against less than 10 tonnes last year”, supporting gold prices, ANZ analysts said in a note.
Spot silver rose 0.4% to $25.13 per ounce. Platinum fell 0.1% to $1,085.61 and palladium dropped 0.8% to $2,136.52.