Gold edges higher as dollar retreats, but inflation fears cap gains

Gold edged up for a third session on Wednesday as the dollar pulled back, though fears of more US interest rate hikes on the back of stubbornly high inflation kept a lid on prices.

Spot gold was up 0.1% at $1,829.37/oz by 3.15am GMT. US gold futures eased 0.1% to $1,835.30.

“Gold is oversold over the near-term, having found support at its 200-day exponential moving average and the US dollar is due a pullback against February’s gains,” said Matt Simpson, a senior market analyst at City Index.

“Next stop for gold could be the $1,850-$1,860 area, at which point we’ll be on the lookout for another top.”

Gold marked its worst month since June 2021 in February after a string of US data pointed to a resilient economy and a tight labour market, stoking fears that the US Federal Reserve would deliver more interest rate hikes to curb inflation.

High interest rates dampen gold’s appeal as an inflation hedge, while raising the opportunity cost of holding the non-yielding asset.

Money markets expect the US central bank’s target rate to peak at 5.420% in September, from a current range of 4.50% to 4.75%. Chances of rate cuts this year have been largely priced out.

US consumer confidence unexpectedly fell in February, with the decrease concentrated among lower-middle-income households, a survey showed on Tuesday.

The dollar index ticked 0.1% lower, making bullion more affordable for buyers holding other currencies.

Meanwhile, official data on Wednesday showed top bullion-consumer China’s manufacturing activity had expanded at the fastest pace in more than a decade in February, smashing expectations as production zoomed after the lifting of Covid-19 restrictions late last year.

Spot silver added 0.7% to $21.06/oz, platinum rose 0.3% to $954.75/oz and palladium gained 1.3% to $1,434.86/oz.