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PRECIOUS-Gold gains favour as investors seek cover from rising inflation

PRECIOUS-Gold gains favour as investors seek cover from rising inflation

reuters.com · 11/11/2021 04:35
PRECIOUS-Gold gains favour as investors seek cover from rising inflation

Adds comment and updates prices

U.S. CPI posts biggest annual gain in 31 years last month

Inflation data dealt a punch to team 'transitory' - analyst

By Arundhati Sarkar

- Gold prices rose on Thursday, firming close to the previous session's near five-month high, as a big jump in U.S. inflation pushed investors towards the safety of bullion.

Spot gold XAU= rose 0.6% to $1,861.08 per ounce by 1054 GMT. U.S. gold futures GCv1 gained 0.8% to $1,863.80.

"Spot gold remains elevated after the latest U.S. CPI release dealt a gut punch to 'team transitory'", said Han Tan, chief market analyst at Exinity, adding gold prices would be well supported as long as inflation fears continue to dominate sentiment.

Gold, seen as a hedge against inflation, rose as much as 2% to its highest level since mid-June on Wednesday after data showed U.S. consumer prices in October rose at their fastest pace in 31 years. nL1N2S11BJ

"(But) persistent inflation could translate into a faster cycle of U.S. rate hikes, testing the Federal Reserve's patient stance on policy tightening," Tan said.

Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of gold, which pays no interest.

Strength in the metal also came despite the dollar .DXY hitting an over 15-month high. A stronger dollar typically makes gold more expensive for holders of other currencies. USD/

"A clear pick-up in labor force participation could also be a driver of higher real rates and allow monetary policymakers to shift focus to damping inflation fears," Citi Research said in a note.

Recent gains in bullion have been supported by a dovish tone taken by key central banks last week, with the Federal Reserve reiterating its view that inflation was "transitory" and would likely not require a fast rise in rates.

However, several Fed officials this week expressed growing concerns over more long-lasting inflation. nL1N2S120F

Among other metals, spot silver XAG= and platinum XPT= both rose 1.3% to $24.95 per ounce and $1,081.05 respectively, and palladium XPD= gained 1.7% to $2,054.42.

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Ramakrishnan M and Shailesh Kuber)

((Arundhati.Sarkar@thomsonreuters.com; twitter.com/Arundhati_05; +1 646 223 8780 Ext: 2776))