Gold edges up as Fed rate fears cap gains

Gold prices rose on Friday as the dollar weakened, though investor worries that recent economic data could lead the US Federal Reserve to keep raising interest rates capped gains.

Spot gold was up 0.2% at $1,826.45/oz at 3.25am GMT. US gold futures gained 0.4% to $1,834.80.

Bullion is likely to decline for a fourth straight week and is down about 0.8% for the period.

“Expectations for the Fed’s rate path have seen a hawkish recalibration, with gold prices’ upside being heavily challenged by the renewed rise in Treasury yields,” said Yeap Jun Rong, a market analyst at IG.

Bullion is seen as a hedge against inflation, but rising interest rates dull its appeal as they increase the opportunity cost of holding the non-yielding asset vis-à-vis bonds.

Data on Thursday showed US GDP increased at a revised 2.7% annualised rate last quarter, while new claims for unemployment benefits unexpectedly fell last week.

Separately, data showed fourth-quarter personal consumption expenditures (PCE) price index rose 3.7%, revised up from a previous estimate of 3.2%.

Thursday’s reports are the latest in a flurry of data that has fuelled concerns that interest rates would stay higher for longer.

Traders of Fed funds futures expect benchmark rates to peak at 5.347% in July and remain above 5% through the year.

The Fed’s preferred inflation measure, the PCE data for January, is due at 1.30pm GMT and will be closely watched.

“Market expectations have previously adjusted to the upside surprises in inflation readings, so it may take a significant outperformance [in core PCE numbers] to sway market expectations further,” Yeap said.

“A lower-than-expected read could see some paring back of hawkish bets, which could prompt renewed upside in gold.”

The dollar index eased off a seven-week high hit on Thursday, making bullion less expensive for overseas buyers.

Spot silver rose 0.2% to $21.33/oz, platinum was little changed at $947.30 and palladium fell 0.3% to $1,444.99.

Reuters