OUT OF STEAM: Gold is off to its best start in six years but prices are expected to fall. Picture: BLOOMBERG
OUT OF STEAM: Gold is off to its best start in six years but prices are expected to fall. Picture: BLOOMBERG

Bengaluru — Gold prices rose further on Thursday, supported by a weaker dollar and as investors bought the metal as a hedge against inflation after a faster than expected rise in US consumer prices in January.

Spot gold was up 0.3% at $1,354.55/oz, as of 4.07am GMT and headed for a fourth consecutive session of gains.

It hit its highest since January 26 at $1,355.50 on Wednesday, and has gained nearly 4% since it dropped to a one-month low last week.

US gold futures were down 0.1% at $1,357.2/oz on Thursday.

"Higher US inflation combined with the US dollar exhibiting zero correlation to higher interest rates amid burdening duel deficits [trade and budget] should play out favourably for gold markets," said Stephen Innes, head of trading Apac at Oanda said.

The dollar index against a basket of currencies was down 0.3% at 88.898, after earlier hitting a nearly two-week low of 88.840.

A recovery in broader risk sentiment was also seen weighing on the dollar, which had gained during the market turmoil earlier this month. The US currency has been hit by a variety of setbacks this year, including from prospects Washington might pursue a weak dollar strategy to the perceived erosion of its yield advantage as other countries part with easier monetary policy. Concerns about the growing US fiscal deficit have also weighed on the greenback.

The US Labor Department said its consumer price index (CPI) increased 0.5% in January as households paid more for petrol, rental accommodation and healthcare, raising pressure on new Federal Reserve chief Jerome Powell to prevent a possible overheating of the economy. Inflation fears boost gold, which is seen as a safe haven against rising prices. But the expectation that the Fed will raise interest rates to fight inflation make gold less attractive since it is not interest-yielding.

"Gold’s technicals have improved dramatically in light of Wednesday’s surge and could draw further fund buying," said INTL FCStone analyst Edward Meir.

Spot gold was expected to break a resistance at $1,357/oz and rise to the next resistance at $1,372, driven by a wave C, said Reuters technical analyst Wang Tao.

Among other precious metals, silver was up 0.2% at $16.91% after earlier hitting a more than one-week high of $16.94.

Palladium was 0.7% higher at $1,007.75, after earlier hitting a one-week top of $1,009.30. Platinum was up 0.2% at $998.74, after earlier hitting $1,002.40, its highest in nearly two weeks.