PRECIOUS-Gold gains as dollar, yields ease; traders focus on U.S. inflation data

BY Reuters | ECONOMIC | 01/11/22 12:50 AM EST

(Updates prices)

* Investors await U.S. CPI data due on Wednesday

* U.S. 10-yr Treasury yield inches away from 2-yr high

* Inflation rate below expectation may provide relief for gold -analyst

By Asha Sistla

Jan 11 (Reuters) - Gold prices rose on Tuesday, supported by a weaker U.S. dollar and Treasury yields, as traders awaited December inflation data and weighed bets for quicker interest rate hikes.

Spot gold rose 0.3% to $1,805.98 per ounce by 0535 GMT. U.S. gold futures were up 0.4% to $1,805.40.

"Pullback in both the U.S. dollar and 10-year treasury yields are supporting gold prices, but the fact that markets are still seeing three to four interest rate hikes this year is limiting the upside potential," said Margaret Yang, a strategist at DailyFX.

The yield on 10-year Treasury notes inched away from an almost two-year high of 1.808% to 1.778%.

Gold is considered a hedge against high inflation, but the metal is highly sensitive to rising U.S. interest rates which increase the opportunity cost of holding non-yielding bullion.

Goldman Sachs now expects the U.S. Federal Reserve to raise interest rates four times this year, matching the view of analysts at J.P. Morgan and Deutsche Bank.

The dollar eased against a basket of currencies as traders looked to incumbent Fed Chairman Jerome Powell's nomination hearing later in the day for new clues on the timing and pace of policy normalisation.

"Markets are seeing 5.4% year-on-year growth in core inflation and if numbers surpass this forecast, we may see the dollar moving up even higher and gold prices dropping. However, if the inflation rate comes below expectation, that may provide some relief for gold," Yang said.

U.S. core CPI is expected to have risen by an annual 5.4% in December, up from 4.9% in the prior month, which could stress the need for earlier-than-anticipated rate hikes by the Fed.

Spot silver was up 0.2% to $22.50 an ounce, platinum gained 1% to $948.97, and palladium rose 1% to $1,931.68. (Reporting by Asha Sistla in Bengaluru; Editing by Rashmi Aich)

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.

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