Gold lackluster as Dollar gains ground with central banks in focus

Markets expect the Bank of England to raise interest rates again and signal further unwinding of its pandemic stimulus later in the day, while the European Central Bank is set to keep policy unchanged but acknowledge surging inflation.

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New York: Gold prices hovered on Thursday below the previous session’s one-week high, as the U.S. dollar regained ground ahead of major central bank meetings as their economies grapple with broadening inflationary risks.

Spot gold was down 0.1% at $1,805.58, as of 0539 GMT, after rising to $1,810.86 in the previous session, its highest since Jan. 27. U.S. gold futures fell 0.2% to $1,806.10.

Markets expect the Bank of England to raise interest rates again and signal further unwinding of its pandemic stimulus later in the day, while the European Central Bank is set to keep policy unchanged but acknowledge surging inflation.

“Rate expectations are the primary driver of gold right now,” said IG Markets analyst Kyle Rodda.

“There’s been some reprieve for gold in recent days from some comments from a handful of Fed speakers, who have hosed down some fears of aggressive tightening.”

Gold is considered a hedge against inflation, but it could see demand take a hit from higher rates as a non-interest-paying asset.

While the U.S. Federal Reserve is expected to hike interest rates in March, policymakers spoke cautiously this week about what might follow, given an uncertain outlook for inflation, as the pandemic hits business activity.

The dollar index firmed against its rivals, curbing demand for the greenback-priced bullion among buyers holding other currencies.

“There is presently a very high correlation between the U.S. dollar movement and gold price direction with little else influencing prices over the last few trading sessions,” said Michael Langford, director at corporate advisory AirGuide, who expects gold to keep treading water around $1,800 an ounce.

In other metals, spot silver eased 0.4% to $22.53 an ounce, while platinum was up 0.1% at $1,034.09 and palladium added 0.3% to $2,377.36.

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