Gold steady ahead of US inflation data

LONDON (Feb 14) Gold prices rose slightly on Tuesday as the dollar weakened, with investors preparing for a report on US inflation that could impact the Federal Reserve's interest rate policy.

Spot gold increased by 0.5% to $1,861.91 per ounce, while gold futures went up by 0.4% to $1,870.50.

Michael Hewson, chief market analyst at CMC Markets, noted that gold had rebounded modestly from one-month lows. The dollar and US yields slipped before the announcement of January's consumer price index (CPI) data. A strong CPI figure could result in further weakness in gold prices, Hewson added.

If inflation remains high, the Fed may have enough motivation to maintain its hawkish stance. Although bullion is widely regarded as an inflation hedge, it is highly sensitive to rising US interest rates, which raise the cost of holding the zero-yield asset. The Fed will have to raise rates even more to bring inflation down to the central bank's target rate, according to Fed Governor Michelle Bowman.

The US Treasury yields decreased for the second day in a row, as the dollar index (DXY) fell by 0.3%. The decrease in the dollar index made bullion more affordable for investors holding other currencies. On the other hand, if US interest rates rise, it could result in the opportunity cost of holding the zero-yield asset going up, which could negatively affect gold prices.

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