Gold eases after steep rally as investors digest US data

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Gold prices eased on Thursday after rallying to a five-month high in the previous session, as investors reassessed how the U.S. Federal Reserve would respond to a surge in consumer prices last month.

Spot gold fell 0.1% to $1,847.23 per ounce by 0419 GMT. U.S. gold futures gained 0.1% to $1,850.10.

The metal rose to its highest since June 15 on Wednesday after data showing U.S. consumer prices recorded their biggest annual gain in 31 years last month, sparked interest in gold as an inflation hedge.

"The upshot might be a knee-jerk reaction to the data and as the market digests it, gold might accelerate lower, especially amid worries of a more accelerated and longer lasting Fed rate hike cycle," said DailyFX currency strategist Ilya Spivak.

"If inflation expectations get entrenched, that might start to impact consumption, potentially causing stagflation. But gold is unlikely to benefit from it as the monetary policy would be uncertain in such a scenario and investors are unlikely to be comfortable with that level of uncertainty."

Several Fed officials this week expressed growing concerns over more long-lasting inflation, even as they expect price increases to eventually subside.

Easy monetary policies to spur economic growth during the pandemic have propelled gold prices to new highs over the last two years. But any hike in interest rates to cool inflation should weigh on gold as it would raise the non-yielding metal’s opportunity cost.

Further pressuring gold was a stronger dollar, which hit its highest in a year. A higher dollar increases gold’s cost to buyers holding other currencies. [USD/]

Spot silver rose 0.3% to $24.69 per ounce. Platinum was steady at $1,066.71 and palladium gained 0.3% to $2,026.80.