Gold rises as dollar retreats; traders focus on Fed rate-hike path

By Brijesh Patel

(Reuters) - Gold prices firmed on Monday, as the U.S. dollar pulled back slightly, while investors dialled down bets of a 100-basis-point interest rate hike by the Federal Reserve at its upcoming meeting.

Spot gold rose 0.7% to $1,719.49 per ounce by 0724 GMT, after falling to its lowest in nearly a year last week. U.S. gold futures gained 0.6% to $1,714.30.

The dollar index was off its near 20-year high, down 0.3%, making greenback-priced bullion less expensive for buyers holding other currencies. [USD/]

"The market walked back the idea of a 100-bp rate hike after Friday's University of Michigan inflation component came in softer," said Stephen Innes, managing partner at SPI Asset Management.

The University of Michigan's preliminary survey of consumers for July showed consumers see inflation running at 2.8% over a five-year horizon, the lowest in a year and down from 3.1% in June.

"Central bank hawkishness has been already priced in, and with gold holding on to $1,700-per-ounce level last week, we may see shorts get squeezed a bit as hawks might be disappointed with the Fed only hiking rates by 75 bps next week."

Fed officials signalled on Friday that they would stick to a 75-bp rate increase at their July 26-27 meeting to combat soaring inflation.

The European Central Bank is expected to raise rates by 25 bps at its policy meeting later this week.

Although gold is seen as an inflation hedge, higher interest rates hurt the appeal of bullion, which bears no interest.

Apart from major central bank meetings, market participants are also waiting to see if Russia resumes the flow of gas through the Nord Stream 1 pipeline on July 21. [MKTS/GLOB]

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.3% to 1,014.28 tonnes on Friday. [GOL/ETF]

Elsewhere, spot silver rose 1.1% to $18.89 per ounce, platinum climbed 1.4% to $862.69, while palladium jumped 2.5% to $1,875.12.

 

(Reporting by Brijesh Patel and Eileen Soreng in Bengaluru; editing by Uttaresh.V, Subhranshu Sahu and Rashmi Aich)