Gold prices fall to 3-month low ahead of US inflation data

Gold prices eased on Wednesday to a three-month low as an elevated dollar continued to restrain bullion while investors await monthly US inflation data, which could have some impact on the Federal Reserve's monetary policy stance.

Spot gold was down 0.1 per cent at $1,838.26 per ounce, as of 0330 GMT (0900 IST), after hitting its lowest since Feb. 11 earlier in the session. US gold futures dipped 0.2 per cent to $1,836.50. US consumer price index (CPI) data for April is due at 1230 GMT (1800 IST).

The markets have priced in the current move in real yields ahead of CPI data. Higher real yields have been driving gold lower and supporting the USD despite nominal yields easing, said Stephen Innes, managing partner at SPI Asset Management.

Analysts expect the CPI data to show a sharp pullback in monthly growth, cooling to 0.2 per cent in April from 1.2 per cent in the prior month, and an annual increase of 8.1 per cent.

The dollar hovered near recent 20-year highs, making greenback-priced bullion less attractive for other currency holders.

"The problem for gold investors and other commodities that have been used as an inflation hedge is that the Fed will at all costs raise rates to snuff out the inflation fires," Innes said.

Fed officials on Tuesday fortified their arguments for the swiftest series of interest rate hikes since at least the 1990s to combat inflation, while President Joe Biden urged the US central bank to tame the price increases he said were hurting American households.

Gold is seen as a hedge against inflation and a safe store of value during times of political and economic crises, but is highly sensitive to rising short-term US interest rates, which raise the opportunity cost of holding zero-yield bullion. Spot silver gained 0.8 per cent to $21.40 per ounce, platinum rose 0.8 per cent to $971.33, and palladium was up 0.1 per cent at $2,067.47.