Gold ticks higher on inflation anxiety, but firm US dollar caps gains

[BENGALURU] Gold prices climbed on Thursday, aided by growing US inflationary pressure, although gains were curbed as the dollar rebounded and US Treasury yields rose after Federal Reserve policymakers hinted at a possible shift in future policy.

Spot gold was up 0.3 per cent at US$1,875.74 per ounce by 0525 GMT. US gold futures eased 0.3 per cent to US$1,876.20.

"What's driving gold and will continue to drive it higher from here is the fact that inflation is now very ingrained. But the Fed doesn't seem to see it," ED&F Man Capital Markets analyst Edward Meir said.

"However, gold is in a bit of a tug-of-war, pulled lower by the stronger dollar and an uptick in the US 10-year rates."

Gold prices rose more than 1 per cent on Wednesday to their highest since Jan 8, but pared most of the gains as the dollar index bounced off from a near three-month low and benchmark US Treasury yields jumped after the Fed minutes.

Fed minutes published on Wednesday showed "a number" of officials thought that if the recovery holds up, it might be appropriate to "begin discussing a plan for adjusting the pace of asset purchases".

Recent data showing a rise in prices in the US and the UK intensified concerns over inflation.

Gold is seen as a hedge against inflation, but an increase in rates from the Fed will dull bullion's appeal as it translates into higher opportunity cost of holding the non-yielding asset.

"Weakening bond yield, building inflationary pressure and a softer dollar have brightened the prospects for gold investment demand," ANZ analysts said in a note.

"That said, the pandemic wave in India could severely impact the physical offtake of gold in Q2."

Spot gold may retest a resistance at US$1,893 per ounce, according to Reuters technical analyst Wang Tao.

Palladium gained 0.9 per cent to US$2,894.14 per ounce, silver was steady at US$27.76, while platinum rose 0.4 per cent to US$1,195.09.

REUTERS