- Dollar rises, testing multi-month highs
- Markets currently see 70% chance of Fed rate hike in October
- US inflation data due on Wednesday
Sept 29 (Reuters) - Gold prices rose 1% on Tuesday but expectations of tighter monetary policy by the Federal Reserve driven by rising concerns of inflation kept bullion near a more-than-seven-week low hit in the previous session.
Spot gold was up 1.1% at $4,157.39 per ounce as of 9:30 a.m. ET (1330 GMT). The session low for Tuesday was $4,112.97, just over $2 above the more than seven month-low of $4,110.55 hit on Monday. US gold futures gained 0.5% to $4,189.60.
Today's move is "just a correction from yesterday's losses. I still think there's some fairly significant headwinds for gold out there," said Peter Grant, vice president and senior metals strategist at Zaner Metals.
Gold fell nearly 4% in the previous session, and was at its lowest level since August 5, pressured by a higher dollar, Treasury yields, energy prices, and inflationary concerns that reinforced rate hike expectations.
"The heightened expectations for more Fed rate hikes are keeping the dollar up, yields remain elevated. I think the upside might be somewhat limited today and market's going to stay focused on the PCE inflation data tomorrow and the jobs data on Friday," Grant said.
The dollar rose, testing several-month highs, underpinned by volatile oil prices and a recent rapid climb in Treasury yields.
A higher dollar makes greenback-priced bullion more expensive for overseas buyers, while higher Treasury yields increase the opportunity cost of non-yielding gold. Rising energy prices, meanwhile, can feed into inflation and force central banks to keep interest rates higher to combat price pressures.
Gold is traditionally considered an inflation hedge, but tends to lose its appeal to yield-bearing assets in a high-interest-rate environment.
Markets currently see a 70% probability of a Fed rate hike in October and a 95% chance of an increase in December, according to the CME's FedWatch Tool.
Investors await key economic data, including ADP employment and the PCE data due on Wednesday, and nonfarm payrolls on Friday.
Among other metals, spot silver eased 0.1% to $60.89, platinum slipped 1.9% to $1,684.95, while palladium lost 0.3% to $1,210.70.
Reporting by Anjana Anil in Bengaluru; Editing by Alexandra Hudson
Source: Reuters