Gold prices edge higher as dollar softens, rate-hike fears cap upside

Gold prices edged higher on Thursday due to a slight pullback in the U.S. dollar, although higher Treasury yields and prospects of more sharp rate hikes by Federal Reserve kept gains in check.

Spot gold rose 0.2% to $1,631.54 per ounce by 0909 GMT. U.S. gold futures inched 0.1% higher to $1,636.50.

The dollar index was down 0.1% against its rivals, making gold less expensive for other currency holders. [USD/]

"A slightly weaker U.S. dollar and losses in the equity markets are giving a little bit of support to gold as a safe haven," said Peter Fertig, an analyst at Quantitative Commodity Research.

 

However, rising yields in major bond markets and outlook for further monetary policy tightening by most central banks are weighing on gold prices, Fertig said.

Benchmark 10-year Treasury yields held near their highest since mid-2008, increasing the opportunity cost of holding non-interest bearing gold. [USD/]

Federal Reserve Bank of Minneapolis President Neel Kashkari said on Wednesday that U.S. job market demand remained strong and underlying inflation pressures probably had not peaked yet.

The Fed is widely expected to hike interest rates by 75 basis points at its policy meeting next month after U.S consumer prices increased more than expected in September.

While gold is often considered a hedge against inflation, rising U.S. interest rates increase the opportunity cost of holding the zero-yielding metal.

Going forward, sentiment is expected to be choppy and prices would be on the selling side, said Hareesh V, head of commodity research at Geojit Financial Services in Kochi, India.

However, demand from the India and China is on the higher side and that may provide some support to gold from major selling, he said.

Spot silver rose 0.2% to $18.47 per ounce and platinum climbed 0.3% to $886.50. Palladium fell 0.8% to $1,984.53.

(Reporting by Arundhati Sarkar and Eileen Soreng in Bengaluru; Editing by Subhranshu Sahu)