Gold steadied on Tuesday, paring earlier losses as the dollar gave up some of its gains against the euro after US consumer price data pointed to a gradual buildup of inflationary pressure. The Labour Department said on Tuesday its Consumer Price Index (CPI) rose 0.3 percent last month after May's 0.4 percent gain.
Gold could benefit from a higher CPI as the metal is often considered a hedge against inflation. However, gains in consumer prices may quicken the pace at which the Federal Reserve raises US interest rates, which would be negative for gold. Spot gold was unchanged on the day at $1,311.90 an ounce by 1344 GMT, reversing the previous session's modest gains, while US gold futures for August delivery were up 0.1 percent at $1,313.00 an ounce.
"There was an attempt to sell it off as the dollar rose, I suppose (there was) just a slight easing of tensions in Ukraine but we are still waiting for news from Europe to see what new sanctions could be considered," Saxo Bank senior manager Ole Hansen said. "We did get a new low for the year for euro/dollar but as we are seeing some of the losses being pared back ... that is probably enough to hold it for gold." The metal had started the session lower as investors preferred riskier assets on speculation tensions between Russia and the West would ease after signs of cooperation from pro-Russian rebels over the downed Malaysian plane.
A train carrying the remains of many of the 298 victims of the plane disaster last week arrived in Ukrainian government territory on Tuesday as a separatist leader handed over the aircraft's black boxes to Malaysian experts. Gold jumped 1.4 percent last Thursday as some investors sought protection against any drop in equities after news of the loss of the Malaysian passenger plane.
News of the jet disaster, coupled with the prospect of harsher Western sanctions on Russia and increased violence in the Middle East after Israel's ground offensive in Gaza, have contributed to keep gold above $1,300 an ounce in the past week. However, investors sold some positions in bullion after the metal snapped a six-week winning streak last week. Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 1.8 tonnes to 803.34 tonnes on Monday.
Signs of escalating violence in Israel also kept investors cautious. The United States, alarmed by civilian bloodshed in an Israeli offensive in the Gaza Strip, took a direct role in efforts to secure a ceasefire on Monday, as the Palestinian death toll jumped to more than 500. Some traders said sluggish physical demand could keep in check any rally in gold or even result in some near-term losses. Physical demand across Asia has been subdued in the last few months, as buyers take a pause after avid purchases stemming from a price drop.
On the Shanghai Gold Exchange, local gold prices were on par with London rates on Tuesday, indicating muted buying interest in China, the top consumer of the metal. Palladium fell 0.4 percent to $870.75 an ounce. Platinum was up 0.3 percent at $1,485.20 an ounce and spot silver lost 0.1 percent at $20.93 an ounce.
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