Gold firms as dollar dips ahead of U.S. inflation test

© Reuters. FILE PHOTO: A saleswoman displays a gold necklace inside a jewellery showroom on the occasion of Akshaya Tritiya, a major gold buying festival, in Kolkata, India, May 7, 2019. REUTERS/Rupak De Chowdhuri

By Eileen Soreng

(Reuters) - Gold rose on Wednesday supported by a pullback in the dollar and U.S. Treasury yields, while investors prepared for U.S. inflation data that could determine how aggressively the Federal Reserve will hike interest rates.

Spot gold rose 0.7% to $1,850.46 per ounce by 0926 GMT, rebounding from its lowest since Feb. 11 touched earlier in the session. U.S. gold futures gained 0.6% to $1,852.50.

The dollar dipped 0.5%, but was not far from a two-decade high touched on Monday, while the benchmark U.S. 10-year Treasury yields retreated from recent highs. [USD/] [US/]

"Spot gold is seeing some reprieve as the U.S. dollar moderates and 10-year Treasury yields dip back below 3% ahead of today's keenly-watched U.S. inflation data," said Han Tan, chief market analyst at Exinity.

"If U.S. inflation is shown to be climbing persistently, that could see spot gold break below its 200-day simple moving average and immediate Fibonacci support level around the mid-$1,830 region."

Analysts expect a sharp pullback in monthly growth of the U.S. consumer price index for April, due at 1230 GMT, cooling to 0.2% from 1.2% in March, for an annual increase of 8.1%.

U.S. central bank officials fortified on Tuesday their arguments for the swiftest series of interest rate hikes since at least the 1990s to combat inflation.

If inflation is softer than expected, prices might bounce, with investors prioritising the data's impact on the Fed instead of bullion's role as a hedge, according to Ilya Spivak, a currency strategist at DailyFX.

Rising short-term U.S. interest rates lift the opportunity cost of holding bullion, while boosting the dollar in which gold is priced.

Spot silver gained 2.5% to $21.76 per ounce, platinum climbed 2.6% to $988.93, while palladium eased 0.2% to $2,060.96.