A gold ingot in Russia. Picture: BLOOMBERG/ANDREY RUDAKOV
A gold ingot in Russia. Picture: BLOOMBERG/ANDREY RUDAKOV

Bengaluru — Gold edged higher on Monday as some investors bought the metal after a steep price drop in the previous session, though caution set in before a key US Federal Reserve meeting after data showed inflation quickened.

Spot gold rose 0.1% to $1,784.08 per ounce by 5.58am after a 1.5% drop to a more one-week trough on Friday. US gold futures gained 0.1% to $1,785.3.

“Gold investors will be much more cautious being caught long above $1,800 now, even if the dollar retraces and gold prices rise,” said Jeffrey Halley, Oanda senior market analyst for Asia Pacific.

Reuters technical analyst Wang Tao also expects spot gold to retest a support at $1,776 per ounce, a break below which could cause a fall towards $1,764.

Data released on Friday shows the jury is still out on the Fed’s view that inflation is transitory and should moderate with time, with the personal consumption expenditures price index advancing last month.

But Halley said the Fed is unlikely to be more hawkish than previously signalled.

“Though they might raise the amount of monthly taper targets, they are likely to say quite strongly that no interest rate hikes are imminent. But none of this will be good news for gold as this should still drive the dollar and yields higher,” Halley said.

The Fed’s two-day policy meeting concludes on Wednesday.

Gold is traditionally seen as an inflation hedge. However, reduced stimulus and interest rate hikes to combat such inflationary pressure tend to push government bond yields up, raising the opportunity cost of holding non-interest bearing gold.

The dollar steadied close to a more than two-week high hit on Friday, making gold less appealing to buyers holding other currencies.

Spot silver fell 0.2% to $23.80 per ounce. Platinum rose 0.9% to $1,027.00, while palladium eased 0.4% to $1,995.17.

Reuters

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