Gold gains as investors focus on inflation

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Nov 19 (Reuters) – Gold prices rose on Friday as concerns over more persistent inflation bolstered the metal’s appeal as an inflation hedge, though prospects of quicker interest rate hikes limited gains.

Spot gold advanced 0.2% to $1,862.97 per ounce by 0455 GMT. U.S. gold futures gained 0.2% to $1,864.90.

Gold scaled its highest level in more than five months earlier this week as an acceleration in U.S. consumer prices last month heightened concerns of more long-lasting inflation.

But as inflation continues to soar and the economy picks up speed, Federal Reserve policymakers are pencilling in the possibility of earlier interest rate hikes than they thought would be needed just a few months ago.

Higher interest rates raise the non-interest bearing gold’s opportunity cost, reducing the metal’s appeal.

“Gold’s unusual rise along with the dollar and yields suggests that markets believe the Fed is not hawkish enough, keeping inflation expectations elevated and real yields low, supporting bullion,” DailyFX currency strategist Ilya Spivak said.

On Friday, the dollar edged 0.1% higher while benchmark 10-year U.S. Treasury yields also rose. A stronger dollar raises gold’s cost to buyers holding other currencies, while higher yields increase the opportunity cost of holding the metal.

“The focus on rate hikes and their impact on inflation makes gold’s near-term price action very sensitive to economic data like next week’s personal consumption expenditures (PCE),” Spivak said, adding the overall trend for gold was still lower given the eventual shift to a rate hike environment.

Market participants also took stock of data showing Swiss gold exports to mainland China increased in October, while shipments to India fell slightly from September.

Spot silver rose 0.5% to $24.90 per ounce but was on track for its first weekly fall in three.

Platinum rose 0.9% to $1,057.03 and palladium gained 0.6% to $2,145.27.

(Reporting by Nakul Iyer in Bengaluru; Editing by Subhranshu Sahu)

Photo – EPA-EFE/YONHAP

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