Gold pulls back as firmer dollar dulls appeal

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Gold prices eased back toward the $1,900 support level on Tuesday, pressured by an uptick in the dollar, although hopes of slower interest rate hikes by the U.S. Federal Reserve limited further losses.

Spot gold was down 0.4% at $1,910.02 per ounce, as of 0742 GMT, following a rally that powered it to its highest level since April 2022 on Monday.

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U.S. gold futures fell 0.6% to $1,910.80.

The dollar index gained 0.2%, making gold more expensive for buyers holding other currencies.

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“Expectations of the Fed slowing pace of rate hikes has been supporting gold. Currently, we are seeing a technical pullback as prices entered the overbought territory,” said Ajay Kedia, director at Kedia Commodities, Mumbai.

Markets are mostly pricing in a smaller 25-basis-point increase when the Fed announces its policy decision in February. The U.S. central bank slowed its pace of hikes to 50 bps in December after four consecutive 75 bps increases.

With lower rates translating into lesser returns on interest-bearing assets such as government bonds, investors tend to increase their holdings of zero-yield gold instead.

Investors also took stock of data showing top gold consumer China’s economic growth in 2022 slumped to one of its worst in nearly half a century as the fourth quarter was hit hard by stringent COVID-19 curbs and a property market slump.

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Traders are locking in profits and gold should ease back towards $1,900 in the short term, said Michael Langford, director at corporate advisory firm AirGuide.

Industry analysts predicted gold prices could hit record highs above $2,000 an ounce this year, albeit with a little turbulence, as the Fed slows rate hikes and eventually stops increasing them.

Spot silver inched 1.4% lower to $24.06.

“We expect silver to outperform gold in 2023 as there is good industrial and investment demand amid low inventories,” Kedia said.

Platinum fell 0.6% to $1,056.25 and palladium lost 0.1% to $1,748.50. (Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Uttaresh.V, Dhanya Ann Thoppil, Sherry Jacob-Phillips and Rashmi Aich)

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