May 25, 2022: Gold prices edged lower on Wednesday, slipping from a two-week high hit in the previous session, as the dollar reclaimed some ground, but uncertainty over the trajectory of inflation supported the safe-haven bullion's outlook.
Spot gold eased 0.2% to $1,862.48 per ounce, as of 0219 GMT, after rising to its highest level since May 9 of $1,869.49 on Tuesday. U.S. gold futures dipped 0.2% to $1,861.60.
The dollar index firmed after hitting its lowest level in a month in the previous session, making greenback-priced bullion more expensive for buyers holding other currencies.
“Investors are struggling with how to assess the landing path of inflation now that peak inflation is behind us. The question for the market is how long it will take to normalize, and that uncertainly is helping gold,” said Stephen Innes, managing partner at SPI Asset Management.
As the Federal Reserve amps up its fight against 40-year-high inflation with what is expected to be a string of big interest-rate increases, one U.S. central banker injected a note of caution, warning headlong rate hikes could create “significant economic dislocation.”
While gold is often seen as a hedge against inflation, higher short-term U.S. interest rates raise the opportunity cost of holding bullion, which yields nothing.
“Gold investors notice the softer change in the Fed language, and dips to $1,850.00 are met with solid support,” Innes said.
“Traders will be looking to the FOMC (Federal Open Market Committee) minutes for policy hints beyond June and July, as September rate hike expectations could be hugely pivotal for gold prices.”
Benchmark U.S. 10-year Treasury yields also firmed after a drop in the previous session to a one-month low, pressuring demand for zero-yield gold.
Spot silver dipped 0.2% to $22.05 per ounce, while platinum gained 0.1% to $954.90, while palladium dropped 0.5% to $1,996.30.