Gold inches down amid worries US inflation could prompt rate hikes

Bengaluru — Gold prices eased on Monday as traders awaited December US inflation data that could stress the need for earlier-than-anticipated interest rate hikes by the Federal Reserve.

Spot gold was down 0.2% at $1,792.22 per ounce, at 6.55am, after hitting its lowest level since December 16 of $1,782.10 on Friday. US gold futures fell 0.3% to $1,791.30.

“People are happy to bid a little bit for gold on the dip. The market is still sort of on the back foot because of the high yields at the end of last week's close,” said Nicholas Frappell, a global general manager at ABC Bullion.

US Treasury yields surged last week after Fed minutes suggested the possibility that the central bank might reduce its balance sheet sooner than anticipated.

Gold is considered a hedge against higher inflation, but the metal is highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion.

Fed funds futures have priced in an almost 90% chance of a rate hike in March and a more than 90% chance of another one by June.

“If inflation data is a little bit hotter than expected, this will only confirm people's expectations [of aggressive tightening from the Fed]. You might see a little bit of decline in real yields, and that would be gold positive,” Frappell said.

US inflation data is due later this week, with December core CPI expected to have risen 5.4% annually after climbing 4.9% in the prior month.

Spot gold may test a resistance at $1,801 per ounce, a break above could lead to a gain into the range of $1,815 to $1,830, according to Reuters's technical analyst Wang Tao.

Spot silver shed 0.3% to $22.23 an ounce, platinum was flat at $955.55, and palladium fell 0.5% to $1,923.57.

Reuters