Gold erased early losses after U.S. inflation data showed domestic prices rising slightly faster than expected, causing real Treasury yields to decline.
The increase in the U.S. consumer price index in May extends a months-long buildup in inflation that risks becoming more established as the economy strengthens. Real yields eased after the data due to the strong gain in inflation expectations, boosting the appeal of non-interest-bearing bullion.
The data came after the European Central Bank renewed its pledge to maintain faster emergency bond buying. Also helping gold was speculation that the rise in the U.S. price index won’t be enough to force the Federal Reserve to change its dovish stance, said Carsten Fritsch, an analyst at Commerzbank AG.
Traders will now focus on the Fed’s meeting next week and the annual gathering in Jackson Hole, Wyoming, according to Paul Wong, market strategist at Sprott Asset Management. Investors are trying to assess how long will inflation can run hot before the Fed tapers, said Wong.
Spot gold was up 0.5% to $1,897.64 an ounce at 3:32 p.m. in New York, after dropping as much as 1% earlier. Futures for August delivery on the Comex rose less than 0.1% to settle at $1,896.40. Spot silver and platinum gained, while palladium fell. The Bloomberg Dollar Spot Index declined 0.2%.
— With assistance by Eddie Spence