London: Gold fell on Wednesday, snapping two days of gains, as the dollar was pushed sharply higher by data showing that US consumer prices rose more than expected in January.
US short-term interest-rate futures fell after the report, pointing to growing conviction that the Federal Reserve will raise rates twice this year as inflation increases.
The prospect of higher interest rates also tends to weigh on non-yielding gold.
Spot gold was down 0.4 per cent at $1,324.02 (Dhan ounce at 1350 GMT, off an earlier high of $1,336.86. US gold futures for April delivery fell by $4.70 to $1,325.70.
“US inflation rose more than expected, which pushes bond yields and the US dollar up and gold down,” said Commerzbank analyst Carsten Fritsch. “It remains to be seen how US stock markets will react when they open. Sharp losses there could lift gold again.”
Rising inflation, which analysts say is being driven by a tightening jobs market and higher government spending, could force the Fed to raise rates this year more quickly than currently expected, potentially curbing growth.
Gold fell last week as investors selling out of sliding stock markets opted for the dollar as an alternative. The US currency then retreated until its Wednesday bounce.
The world’s largest gold-backed exchange-traded fund, SPDR Gold Shares, reported an inflow of nearly 3 tonnes on Tuesday after the biggest weekly drop in holdings since July 30.
On the physical side of the market, gold demand in major consumer China was weak in the run-up to the New Year holiday that begins on Thursday, dealers said.
“Today marks the final day before China takes a weeklong holiday for Lunar New Year celebrations,” MKS said in a note.
“Volumes were again lower than the previous day.”
The premium for gold in Shanghai over the spot price fell to $6 an ounce on Tuesday, it said, from $8-9 at the end of last week.
Among other precious metals, silver was down 0.7 per cent at $16.44 an ounce, palladium was little changed at $985.10 and platinum was 0.4 per cent down at $972.50.
The platinum market is set for another surplus this year after recording oversupply of 110,000 ounces in 2017, Johnson Matthey said in a report on Wednesday, though sister metal palladium is tipped for another deficit.