NEW YORK/LONDON: Gold rose around 1 percent on Wednesday as broad gains in the commodities complex and signs of simmering inflation lifted bullion after the previous day's drop.
Silver jumped nearly 2 percent, outperforming gold and notching its largest six-day rally in nearly two years, as economic hopes boosted its industrial demand, analysts said.
The Labor Department said that US producer prices were flat in July, which could add to worries at the Federal Reserve that inflation is running too low, indicating the US central bank might not end its stimulus until inflation begins to trend higher.
Spot gold rose 1.1 percent to $1,334.84 per ounce by 3:56 p.m. EDT (1906 GMT). On Tuesday, gold ended 1 percent lower as strong US retail sales data boosted the dollar.
US Comex gold futures for December delivery settled up $12.90 at $1,333.40 an ounce, with trading volume about 40 percent below its 30-day average, preliminary Reuters data showed.
Despite the tame PPI data, traders said that a recent surge in US Treasury bond yields indicates gold's inflation-hedge appeal could be rising.
"The bond market is telling us that it's expecting some inflation. That can make me a buyer of gold," said Sean McGillivray, head of asset allocation at Great Pacific Wealth Management.
Yields on US Treasuries held near two-year highs on Wednesday. The benchmark 10-year bond yield has soared 67 percent since May on fears that the Fed might unwind its bond-buying program as early as September.
As inflation rises, Treasuries investors require a higher yield to compensate for the loss of purchasing power.
On Tuesday, Atlanta Fed President Dennis Lockhart said he did not see any signs that disinflation was accelerating, and that the current inflation backdrop could still be consistent with a modest pullback in quantitative easing.
"Just a mere mention that there could be some potential inflation has moved gold up today," said Jeffrey Sica, chief investment officer at New Jersey-based Sica Wealth Management, which oversees more than $1 billion in client assets.
Another senior Fed official, St. Louis Fed president James Bullard, said on Wednesday low US inflation is worrisome for the country's economy and there is not much evidence it is heading higher, highlighting an issue for the Fed as it weighs tapering bond purchases.
The gold market largely ignored news of another tightening measure on physical bullion imports by India, the world's largest gold consumer.
The 19-commodity Thomson Reuters-Jefferies CRB index climbed around 0.7 percent, led by gains in precious metals and agricultural commodities.
Among other precious metals, silver rose 1.9 percent to $21.81 an ounce, after hitting a two-month high of $21.85.
Silver posted its sixth straight session of gains for the first time since January. During that period it has gained 11 percent, its largest six-day rise since October 2011.
Platinum was up 0.2 percent to $1,500.74 an ounce, while palladium edged up 16 cents to $736.66 an ounce.
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