Gold hovers near 5-month peak on weaker dollar, inflation jitters

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Gold scaled a near five-month peak on Tuesday on support from a weaker dollar and growing concerns over inflation, with investors awaiting key U.S. data due later this week to gauge the extent of economic recovery.

 

Spot gold rose 0.2% to $1,911.02 per ounce, having earlier touched its highest since Jan.8 at $1,916.4. U.S. gold futures were up 0.4% at $1,913.60.

 

“It is quite clear from Friday’s (consumer price) data that there are ongoing concerns about inflation emerging. This is all part of a developing story, and one which would develop very much in the second half of this year,” independent analyst Ross Norman said.

 

Although U.S. Treasury yields have been relatively firm, it is the weaker dollar that is boosting gold now, he added.

 

The dollar index was down 0.3% against its rivals.

 

Data showed last week U.S. consumer prices surged in April, with a measure of underlying inflation blowing past the Federal Reserve’s 2% target.

 

Gold, considered an inflationary hedge, has benefited from expectations for higher inflation as central banks around the world eased policy. However, Fed Chair Jerome Powell has repeatedly stated that higher inflation will be transitory.

 

The focus this week will be on key U.S. economic readings, including non-farm payrolls data on Friday.

 

Global stocks scaled new peaks on Tuesday ahead of European and U.S. economic data releases.

 

Spot gold may rise into a $1,932-$1,953 range, Reuters technical analyst Wang Tao said.

 

Silver gained 0.9% to $28.29 per ounce, after hitting a two-week high earlier in the session. Palladium rose 1.3% to $2,865.86, while platinum fell 0.1% to $1,184.98.

 

“The disappointing performance of the platinum price recently is also reflected in ETF demand. In contrast to gold, platinum has registered ETF outflows of late,” Commerzbank analyst Carsten Fritsch said in a note.

The dollar hovered near five-month lows on Tuesday as investors waited for euro zone inflation data and a U.S. manufacturing survey, while the yuan steadied after China’s central bank took steps to limit its appreciation.

 

The dollar index was back below 90 in early European trading, having hit as high as 90.447 on Friday, when a measure of U.S. inflation closely watched by the Fed posted its biggest annual rise since 1992. The gauge sank 0.3% on Monday in a market thinned by U.S. and British holidays.

 

Fed officials, led by Chair Jerome Powell, have said repeatedly they expect price pressures to be transitory and monetary stimulus to stay in place for some time, but investors are wary that a strong pandemic recovery could force the Fed’s hand.

 

Australia’s central bank left its cash rate at record lows and reiterated its lower-for-longer policy stance, even as data showed the country’s output was above its pre-pandemic level.

The New Zealand dollar was up 0.1% at 0.72845. The Reserve Bank of New Zealand surprised markets last week by hinting at a future interest rate hike.

 

China’s yuan was steady after authorities ordered banks to increase their foreign exchange holdings, a move seen as an attempt to limit the fast yuan appreciation.

 

The offshore yuan was at 6.3726, flat on the day, having crossed the key psychological 6.40 level last week and touched a new three-year high of 6.3524 on Monday.

 

Analysts said that although the central bank’s move – which is expected to withdraw just $20 billion worth of liquidity from the system – would slow the pace of the yuan’s strengthening versus the dollar, it was unlikely to stop it completely.

 

“Fundamental pressures that have encouraged a stronger renminbi over the past year remain in place,” wrote MUFG currency analyst Lee Hardman in a note to clients.

 

“The measures will not prevent global investors from easily obtaining cheap foreign exchange overseas and being able to continue investing in higher yielding renminbi bonds.”

 

“The loose policy approach of other major central banks including the Fed is expected to keep upward pressure on the renminbi,” he added.

 

British pound hit a three-year high of $1.425 during the Asian session, helped by remarks from a Bank of England policymaker last week pointing to a rate hike next year or sooner.

The Canada’s dollar was close to a six-year high, up 0.3%, having strengthened for four months in a row as the outlook for the domestic economy improved.

 

As currency traders weigh up the prospects for central bank tightening, focus in the near-term is on euro zone HICP inflation data for May, due at 0900 GMT.

 

“We don’t expect data this week to mateBRIrially change market expectations about the Fed’s policy stance, and the dollar’s momentum may stay soft on the back of a still negative real rate narrative,” wrote ING FX strategists in a note to clients.

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