Gold advances on softer dollar as traders await U.S. inflation data

The dollar eased on Tuesday ahead of important U.S. inflation figures.

As of 0456 GMT, spot gold rose 0.5% to $1,999.11 an ounce. U.S. Gold Futures increased 0.5% to $2 013.30.

Dollar index is down 0.1%, which makes bullion more affordable for foreign buyers.

Investors are now waiting for the U.S. Consumer Price Data due on Wednesday to get more clarity about the direction of interest rates leading up to the Federal Reserve’s May Policy Meeting.

Christopher Wong, OCBC's FX strategist, said that a hotter-than expected print could suggest the Fed will still raise rates in May. "Gold's recent rally has been a bit excessive.

The U.S. Employment Report released on Friday indicated a tightening labor market, and increased bets that the U.S. Central Bank will raise interest rates next month. According to CME FedWatch, the markets are pricing in a chance of 71.7% for a 25 basis point increase.

When interest rates are increased to reduce inflation, the opportunity cost of holding non-yielding gold increases.

On Wednesday, the Fed will also review the minutes of its policy meeting held March 21-22.

Wong said that "near-term there are also technical bearish setups" for a correctional move lower in the gold price.

John Williams, President of the Federal Reserve Bank of New York, said on Monday that the Fed's aggressive efforts to reduce inflation did not result in collateral damage to the financial system.

The data released on Tuesday shows that the consumer inflation rate in March for China, the world's largest consumer of bullion, was at its lowest level since September 2021. This suggests that demand is still weak despite an uneven economic recovery.