Gold gains on softer dollar, yields; U.S. inflation data in focus

Gold prices edged higher on Tuesday, helped by a pullback in the dollar and bond yields as investors looked forward to U.S. inflation data the could offer more cues on the Federal Reserve’s rate hike path.

Spot gold was up 0.2% at $1,929.23 per ounce, set for a third consecutive session of gains. U.S. gold futures gained 0.2% to $1,934.7.

Making gold cheaper for holders of other currencies, the dollar index was down 0.1% after hitting its lowest level since May 11 earlier in the session. Benchmark 10-year U.S. Treasury yields also slipped.

“If we have a soft inflation reading, it will be positive for gold and prices might go up to $1,950. I think it will be tough for gold to break below $1,900 level on a hot report,” said Edward Moya, senior market analyst at OANDA.

“There are concerns that central banks might tighten this economy in to a much harder recession. Rate hikes are not going to break gold’s back, but it might kill the economy. So there is some support for gold due to this reason.”

All eyes are on U.S. consumer prices data due on Wednesday, which is expected to show prices cooled on an annual basis in June.

However, markets are pricing in a 25 basis-point rate hike from the Fed later this month after last week’s jobs report pointed to a resilient U.S. economy.

Gold is used as a safe investment during times of political and financial uncertainty, but higher interest rates increase the opportunity cost of holding non-yielding bullion.

Several U.S. central bank officials on Monday said the Fed would likely need to raise interest rates further to bring down inflation, but the end to its current monetary policy tightening cycle was getting close.

Spot silver dipped 0.4% to $23.03 per ounce, platinum eased 0.3% to $924.01, and palladium added about 0.7% to $1,248.37.