Gold prices edged higher on Tuesday as some investors sought cover from economic uncertainty including the debt ceiling deadlock in Washington, while also positioning for a U.S. inflation print for cues on the trajectory of interest rates.
Spot gold was up 0.4% to $2,028.75 per ounce by 9:55 a.m. EDT while U.S. gold futures gained 0.2% to $2,036.40.
Equities markets dipped as traders were kept on edge by weak Chinese trade data and the impasse over the U.S. debt ceiling.
“It’s going to be a risk-off day” as markets await U.S. consumer price index (CPI) data on Wednesday, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.
Hotter-than-expected CPI data would bolster the likelihood of further Fed rate hikes, but much weaker data could cause “a big rush into commodities across the board and further liquidation in the dollar index,” Streible added.
While gold is traditionally seen as a hedge against inflation, rising interest rates dull non-yielding bullion’s appeal.
Fed Governor Philip Jefferson said the U.S. economy is slowing in an “orderly fashion” that should allow inflation to decline even as growth continues.
Markets are pricing in an 83% chance of the Fed keeping rates on hold in June and a 31% chance of a rate cut in July, according to CME’s FedWatch tool.
Commerzbank analyst Carsten Fritsch, however, said in a note that there’s no scope for the U.S. central bank to implement rate cuts this year and gold is likely to remain above the $2,000 mark.
Investors were also monitoring developments in the U.S. banking sector after a Fed survey released on Monday showed banks had tightened credit standards over the first months of the year and saw weakness in loan demand.
Silver was up 0.2% to $25.62 an ounce while platinum added 1.4% to $1,085.59 and palladium gained 1.5% to $1,577.11.
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