Gold firms as dollar weakens ahead of key US inflation data

Gold prices firmed on Wednesday as the dollar weakened, with investors awaiting the US Federal Reserve’s latest policy meeting minutes and inflation data for signs of how close interest rates are to peaking.

Spot gold rose 0.3% to $2,008.19 per ounce by 11.02am GMT. US gold futures were up similarly to $2,025.

US consumer price index (CPI) data is due at 12.30pm GMT and the Fed’s minutes of the March meeting at 6pm GMT.

“The Fed minutes will be closely scrutinised for key insight into how policymakers evaluated the need for higher rates despite the turmoil in the banking sector,” said Lukman Otunuga, senior research analyst at FXTM.

The International Monetary Fund (IMF) said lingering financial system vulnerabilities could erupt into a new crisis, but urged member countries to keep tightening monetary policy to fight inflation.

Higher inflation figures would have a negative impact on the gold price, and weaker than expected price data would boost rate-cut expectations and thus benefit gold, analysts at Commerzbank said in a note.

Gold meanwhile drew strength as the dollar slipped, making gold cheaper for holders of other currencies, while benchmark US yields were close to their highest in a week, limiting gold’s gains.

Eurozone markets see two 25-basis-point (bps) moves as priced in, while investors are split over a third hike as the European Central Bank (ECB) focuses on reducing price pressures.

Commentary from ECB Vice-President Luis de Guindos will also be closely monitored on Wednesday.

Philadelphia Fed President Patrick Harker on Tuesday said he feels the Fed may finish raising rates once they exceed 5%.

While gold is seen as a hedge against inflation, higher rates to bring down prices tend to weigh on non-yielding gold’s appeal.

Spot silver rose 0.3% to $25.14 per ounce, platinum was up 0.9% to $1,003.68 while palladium gained 0.7% to $1,455.89.