Gold rose early on Tuesday after two days of sharp losses, lifted by a dollar drop and after data showed US consumer prices climbed but seen unlikely to derail the Federal Reserve's ultra-easy monetary policy. The metal rebounded from Monday's one-month low, after US Labour Department said US Consumer Price Index climbed 0.6 percent in September, matching analysts' expectations and August's reading. Solid gains in US equities also underpinned bullion.
Gold has rallied $200 an ounce in the last two months due to hopes that the Fed's monetary stimulus might trigger inflation. The US central bank said in September it would keep buying mortgage-backed securities until the job market improves dramatically. "From an inflation standpoint, the fact that the CPI is in line gives the Fed more room to continue easing," said Adam Sarhan, CEO of Sarhan Capital.
Technical buying also boosted gold as it held well above key support of its 50-day moving average (DMA) despite Monday's pullback. Late last month, the metal formed a bullish "golden cross," in which its 50 DMA traded above its 200 DMA. Spot gold was up 0.5 percent at $1,743.90 an ounce by 11:11 am (1511 GMT), well above the previous day's one-month low at $1,728.75.
US COMEX gold futures for December delivery were up $7.80 an ounce at $1,745.40, with trading volume on track to finish below average, preliminary Reuters data showed. Gold prices fell 1 percent on Monday after firm US retail sales data, coupled with well-received jobless and consumer confidence reports in the previous week led to questions over how far the Fed's latest stimulus program will extend.
Investors appeared to lessen their bullish bets on gold after Monday's sharp decline. Holdings of bullion exchange-traded funds tracked by Reuters fell by 213,228 ounces on Monday, due to an outflow from the largest gold ETF, the SPDR Gold Trust. The largest silver ETF, the iShares Silver Trust also recorded an outflow of 290,558 ounces on Monday. ETFs, which issue securities backed by physical stocks of precious metal, have proved a popular way to invest in bullion in recent years.
Other precious metals also rebounded after Monday's sharp pullback. Silver was up 0.8 percent at $32.95 an ounce. On Monday it hit a one-month low at $32.53 an ounce. Spot platinum edged up 0.2 percent at $1,638.40 an ounce, while spot palladium was up 0.8 percent at $634.72 an ounce.