Gold rises on softer dollar, yields ahead of US inflation data

• Gold prices at three-week high
• Dollar down 0.4%, at lowest since May 11

By Seher Dareen July 12 (Reuters) – Gold prices rose on Wednesday after the dollar and bond yields retreated as investors awaited U.S. inflation data that could offer more cues on the Federal Reserve’s rate-hike policy path.

Spot gold rose 0.4% to $1,939.43 per ounce by 0518 GMT, its highest since June 20. U.S. gold futures rose 0.4% to $1,944.90. Making gold cheaper for holders of other currencies, the dollar index fell 0.4% to its lowest level since May 11. Benchmark 10-year U.S. Treasury yields also slipped to their lowest in nearly a week.

“There has been some renewed confidence in gold prices lately, given the broad expectations for the upcoming U.S. CPI to reflect further moderation in pricing pressures,” said Yeap Jun Rong, market strategist at IG. Economists polled by Reuters expect June core inflation rate to have dropped to 5% from 5.3%, still significantly above the Fed’s 2% target.

The data is due at 1230 GMT.

Some Fed members on Monday said the central bank was close to ending its monetary policy tightening, yet there was work to be done to bring down inflation. Markets see a 92% chance of the Fed raising rates by 25 basis points at their policy meeting on July 25-26, as per the CME’s Fedwatch tool. Higher interest rates increase the opportunity cost of holding non-yielding bullion.

While July’s rate hike was largely priced in, “if we see core inflation still being higher than expected, then I think the expectations of another rate hike coming September will start gaining traction,” Harshal Barot, senior consultant at Metals Focus said. In the wider base metals market, prices rose, supported by a weaker dollar, although a gloomy demand outlook loomed over the market.

China’s yuan also firmed to its strongest in three weeks against the greenback. Spot silver gained 0.6% to $23.24 per ounce, platinum rose 0.7% to $930.61 while palladium was up 0.13% to $1,252.73.