Gold bars are displayed at Degussa shop in Singapore. Picture: REUTERS
Gold bars are displayed at Degussa shop in Singapore. Picture: REUTERS

London — Gold prices edged higher on Monday as the dollar retreated from a 2018 peak after subdued US inflation data last week highlighted the prospect of fewer US interest rate increases than previously expected this year.

Spot gold was up 0.2% at $1,320.52 an ounce at 10.58am GMT, having touched $1,325.96 on Friday, its highest since April 26. US gold futures were unchanged at $1,320.70.

A weaker US currency makes dollar-denominated gold cheaper for holders of other currencies — a relationship used by funds to generate buy and sell signals. Though the dollar eased on Monday, its performance against a basket of other major currencies touched 93.416 last week for a gain of more than 4% since April 17 and its highest level since December.

"Gold is dollar-driven but it is doing reasonably well given the dollar is generally stronger," said Macquarie commodities strategist Matthew Turner.

Further support could come from rising security risks in the Middle East after the US said it would withdraw from the 2015 international nuclear deal with Iran and reimpose sanctions. However, gold is expected to remain in the narrow range it has been trading this year — mostly between $1,300 and $1,350 — unless supply or demand fundamentals change dramatically.

"Gold’s trading range in the first four months between low and high price was the lowest in percentage terms since it was fixed to the dollar in 1971," Turner said.

Higher US interest rates, possibly in June at the Federal Reserve’s next meeting, will weigh on gold, but analysts say they are unlikely to push gold significantly lower.

"Over the short term, and particularly during May, we see gold trading between $1,285 and $1,338 an ounce as continued strength in the dollar and rising rates pressure values lower," said INTL FCStone analyst Edward Meir.

Traders said that falling gold imports by India, a top consumer, were also undermining sentiment. Silver was up 0.3% at $16.67 an ounce, platinum rose 0.3% to $924.60 and palladium slipped by 0.4% to $992.05.