Gold ticks up on economic risks, US inflation in focus

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 the U.S. inflation print for cues on the trajectory of interest rates.

Spot gold was up 0.2% at $2,025.00 per ounce by 11:20 a.m. EDT (1520 GMT), while U.S. gold futures were little changed at $2,032.20.

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 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 rate hikes, but much weaker data could cause “a big rush into commodities across the board and further liquidation in the dollar”, Streible added.

While gold is considered 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 82% chance of the Fed keeping rates on hold in June and a 33% chance of a cut in July.

Commerzbank analyst Carsten Fritsch, however, wrote in a note that there is 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 tightened credit standards over the first months of the year and saw weakness in loan demand.

Silver was down 0.4% at $25.47 an ounce, while platinum added 1.9% at $1,091.14 and palladium gained 1.6% to $1,579.02.