PRECIOUS-Gold gains as inflation fears cloud risk sentiment

BY Reuters | ECONOMIC | 10/12/21 05:31 AM EDT

* Prolonged stagflation can push gold higher -analysts

* U.S. CPI, Fed minutes due on Wednesday (Adds comment, updates prices)

By Arundhati Sarkar

Oct 12 (Reuters) - Gold rose on Tuesday as rising inflationary fears weighed on investors' appetite for risk and a pullback in U.S. Treasury yields added to the appeal of the non-yielding bullion.

Spot gold rose 0.4% to $1,761.41 per ounce by 1159 GMT, while U.S. gold futures were up 0.4% at $1,762.40.

A global energy crunch has threatened the economic outlook and fanned inflation fears, driving some investors toward safe-haven assets.

"There's more risk aversion in the market and gold is benefiting from that, coupled with concerns about inflation and cooling of the global economy," Commerzbank analyst Daniel Briesemann said.

If stagflation talks come to the fore increasingly that should help gold clock $1,900 by year end as interest rates should remain relatively low even if the Fed starts tapering, Briesemann added.

Gold is traditionally seen as an inflation hedge. However, reduced central bank stimulus and interest rate hikes tend to push government bond yields up, translating into a higher opportunity cost for holding gold that pays no interest.

The benchmark U.S. Treasury yields pulled back after touching their highest since early June. The dollar index , on the other hand, was largely steady.

While the talk about stagflation is "little bit positive for gold," an eventual Fed tapering "is really a threat and the risk is currently more to the down than to the upside", said Quantitative Commodity Research Analyst Peter Fertig.

"As long as you have the risk of rising opportunity costs and a firmer U.S. dollar, gold is not attractive for longer term holding."

Focus is on minutes of the Fed's Sept. 21-22 policy meeting and the consumer price index, both due on Wednesday.

Spot silver rose 0.1% to $22.58 per ounce and platinum was 0.1% higher at $1,008.89.

Palladium was little changed at $2,112.91. (Reporting by Arundhati Sarkar in Bengaluru; Editing by Amy Caren Daniel and Anil D'Silva)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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