Gold firms as softer dollar negates pressure from higher yields

Gold prices edged higher on Wednesday, as a weakening dollar countered pressure from stronger Treasury yields and an aggressive stance on inflation by the U.S. Federal Reserve chief.

A weaker dollar makes gold more attractive for buyers holding other currencies.

FUNDAMENTALS

* Spot gold was up 0.1% at $1,816.56 per ounce, by 0106 GMT. U.S. gold futures dipped 0.2% to $1,814.50.

* The dollar extended its decline to a fourth day, pulling back from a recent two-decade high against a basket of major peers, as an uptick in investors’ appetite for riskier bets diminished the U.S. currency’s appeal.

* However, yields on the benchmark U.S. 10-year Treasury note steadied after a sharp rise in the previous session, capping demand for zero-yield gold.

* Fed Chair Jerome Powell on Tuesday pledged that the U.S. central bank would ratchet interest rates as high as needed to kill a surge in inflation that he said threatened the foundation of the economy.

* The Fed has raised its benchmark policy rate by three-quarters of a percentage point this year, and is on track to increase it again in half-percentage-point increments at its next two meetings in June and July.

* Although seen as an inflation hedge, bullion is sensitive to rising U.S. short-term interest rates and bond yields, which raise the opportunity cost of holding it.

* U.S. retail sales increased solidly in April as consumers bought motor vehicles amid an improvement in supply and frequented restaurants, showing no signs of demand letting up despite high inflation.

* Spot silver rose 0.2% to $21.66 per ounce, platinum gained 0.1% to $952.31, and palladium advanced 0.2% to $2,057.35.