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Gold climbs after US inflation data hits dollar

Fed tipped to hike rates, policy statement awaited.

LONDON – Gold rose 1% on Wednesday after weaker-than-expected US inflation data for May knocked the dollar index to nine-month lows ahead of a keenly awaited Federal Reserve policy statement.

The US central bank is widely tipped to unveil a quarter-point interest rate hike at the end of its latest
two-day meeting at 1800 GMT, lifting the Fed funds target rate above 1% for the first time since the aftermath of Lehman Brothers’ collapse in 2008.

However, an unexpected month-on-month drop in US consumer prices and retail sales shown in data released on Wednesday suggested inflation pressures are moderating, which could have an impact on further interest rate hikes this year.

Spot gold was up 0.1% at $1 277.74 an ounce at 1330 GMT, while US gold futures for August delivery were up $11.30 an ounce at $1 279.79. The metal peaked at $1 279.37 as the dollar index fell to its lowest since November 9 following the release of weaker-than-expected US CPI and retail sales data, which stoked expectations that Fed rate policy would remain cautious.

“If the Fed hikes, it will most certainly be followed by a dovish comment,” Saxo Bank’s head of commodity research Ole Hansen said. “Either way it could signal the end of the latest gold retracement, which has been healthy and not that deep considering the speculative length that was added during the past few weeks.”

Gold is highly sensitive to rising US interest rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar. Markets are awaiting fresh clues on policy after scaling back their expectations for further US rate hikes this year over the last few months.  

Fed chair Janet Yellen is due to hold a news conference 30 minutes after the main policy statement.
Silver also climbed, up 2.2% at $17.23 an ounce after hitting its lowest in nearly a month the previous day at $16.68.

Platinum, which also hit a near one-month low of $918.50 on Tuesday, was up 2.3% at $942.50 an ounce. Palladium, which hit a 16-year high last week at $914.70, was down 0.1% at $883 an ounce.

“The palladium price is expected to see a correction in the short term after the exaggerated increase in the last few weeks,” Commerzbank said in a note.

“Afterwards the palladium price should rise to $850 per troy ounce by year-end due to the expected large supply deficit and the positive price trend in precious metals in general.”

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