Gold prices rose on Wednesday after falling by around 3% in the previous session. However, gains remained limited as expectations grew that the US Federal Reserve would raise interest rates next month following stronger-than-expected inflation data, putting pressure on the precious metal.
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Spot gold rose 0.3% to $4,043.62 per ounce by 03:03 GMT, after dropping approximately 3% to $4,017.21 on Tuesday. US gold futures for December delivery gained 0.5% to $4,051.10.
Matt Simpson, an analyst at StoneX, said: "We are seeing a technical rebound following Tuesday's heavy losses, as traders betting on falling prices take profits while waiting for the next catalyst. The rise in the Consumer Price Index and hawkish comments from Federal Reserve officials have revived expectations of tighter monetary policy."
On Tuesday, the likelihood of the US central bank raising interest rates by half a percentage point next month increased after data showed that US inflation accelerated more than expected in October. Policymakers also signalled their readiness to tighten monetary policy further.
According to CME Group's FedWatch tool, traders now see a 100% probability of an interest rate increase in December, up from 84% before the data was released.
Gold is generally considered a hedge against inflation. However, higher interest rates increase the opportunity cost of holding the non-yielding precious metal, making it less attractive to investors.
Soni Kumari, an analyst at ANZ, said: "If we see positive developments in the Middle East, that would support gold from an inflation perspective. But overall, the near-term macroeconomic outlook for gold does not appear favourable."
Federal Reserve Vice Chair for Supervision Michelle Bowman joined a growing number of policymakers on Tuesday in stressing that bringing inflation down remains the central bank's top priority.
Among other precious metals, spot silver rose 1.7% to $52.38 per ounce, while palladium gained 1.3% to $1,038.38.
Source: Reuters
