Gold Edges Up as Dollar Weakens, But Inflation Looms
Gold prices gained momentum on Tuesday as a weaker US dollar helped bullion recover from two sessions of losses. The dollar index fell by about 0.4%, making gold cheaper for buyers using other currencies.
The precious metal rose to $4,429.89 an ounce in early Asian trading, while December US gold futures remained relatively unchanged at $4,475.10. However, the stronger-than-expected US payrolls report from Friday still weighed on gold, as it revived expectations for tighter monetary policy and a potential September rate hike by the Federal Reserve.
The Bureau of Labor Statistics reported that US employers added 162,000 jobs in August, while unemployment held at 4.1%. Saxo Bank commodity strategist Ole Hansen noted that the stronger employment report had lifted bond yields and reinforced expectations of a September rate rise, putting pressure on both gold and silver.
Attention now turns to inflation data, with the Bureau of Labor Statistics set to release August producer prices on Thursday and consumer prices on Friday. A hotter reading could strengthen the argument for another increase in borrowing costs, potentially pushing Treasury yields and the dollar higher again, while softer inflation could reduce the urgency to tighten and give gold room to extend its recovery.
Despite the short-term sensitivity of gold to Fed policy, analysts see a more supportive longer-term demand picture. Central banks added a net 23 tonnes of gold to reserves in July, led by China and Poland, according to the World Gold Council.