By Ashitha Shivaprasad
(Reuters) – Gold prices edged higher on Tuesday as the dollar slipped, with investors positioning for a U.S. inflation report that could influence the Federal Reserve’s interest rate strategy.
Spot gold rose 0.4% to $1,860.69 per ounce by 1301 GMT (8:01 a.m. ET), after falling to its lowest since early January in the previous session.
U.S. gold futures were also up 0.4% to $1,871.50.
“Gold prices are seeing a modest rebound off 1-month lows as U.S. yields and the dollar slip back ahead of this afternoon’s January CPI report,” said Michael Hewson, chief market analyst at CMC Markets.
January’s U.S. consumer price index (CPI) data is due at 1330 GMT (8:30 a.m. ET) and a Reuters poll forecast the headline CPI figure to rise 0.5%.
The dollar index fell 0.4%, making greenback-priced bullion more affordable for buyers holding other currencies. Benchmark 10-year U.S. Treasury yields dipped for the second straight session. [USD/] [US/]
If the inflation rate turns out to be lower than expected, the market is likely to scale back its interest rate expectations, allowing the gold price to rise, analysts at Commerzbank said in a note.
Although bullion is considered an inflation hedge, it is highly sensitive to rising U.S. interest rates, as they increase the opportunity cost of holding the zero-yield asset.
According to economists polled by Reuters, the Fed could raise interest rates at least twice more in coming months with no cut by year-end.
Markets now expect Fed’s target rate to peak at 5.188% in July, from a current range of 4.5% to 4.75%.
“Another weak inflation print could draw an abrupt end to the correction and see gold rally once more, at which point $1,890-$1,900 may provide the initial test,” said Craig Erlam, senior market analyst at OANDA in a note.
Among other precious metals, spot silver fell 0.7% to $21.82 per ounce, platinum was down 0.4% to $950.12 while palladium fell 0.2% to $1,563.52.
(Reporting by Ashitha Shivaprasad and Seher Dareen in Bengaluru; editing by Jason Neely, Kirsten Donovan)
