Gold prices dip as dollar rally dims appeal

Gold prices inched lower on Thursday as the dollar scaled a fresh two-decade peak after April U.S. inflation data bolstered expectations that the Federal Reserve would stick to its aggressive rate-hike roadmap.

Spot gold fell 0.2% to US$1,848.15 per ounce by 0959 GMT. U.S. gold futures were down 0.2% at US$1,849.20.

“We would expect gold to get support from the higher inflation environment … The dollar has actually gained quite a bit since the CPI print and that’s prohibiting gold from making gains,” WisdomTree analyst Nitesh Shah said.

The U.S. dollar index rose to fresh two-decade highs as concerns that tighter monetary policies to tame surging inflation will hurt the global economy dampened risk sentiment and drove investors into the safe-haven currency.

The inflation reading comes on the heels of the Fed raising its benchmark overnight interest rate by an aggressive half-a-percentage point last week, the most in 22 years.

There is also the risk of central banks overdoing it and posing recessionary risks which could support gold, Shah added.

Gold is highly sensitive to rising U.S. interest rates and higher yields, which increase the opportunity cost of holding non-yielding bullion and also tend to boost the dollar in which gold is priced. It is, however, seen as a safe store of value during economic and political crises.

Declines in gold were, however, limited by a slide in the benchmark 10-year Treasury yields, which hit the lowest level in two weeks.

Spot silver fell 1.4% to US$21.25 per ounce, platinum dropped 2.6% to US$966.21 and palladium slid 3.2% to US$1,969.85.

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