Gold steadied near its highest in more than four months on Tuesday, buoyed by a weaker dollar but with gains capped after U.S. Federal Reserve officials soothed fears about inflation.
Spot gold had risen 0.12% to $1,883.36 per ounce by 0930 GMT, not far from its highest in 4-1/2 months hit on Wednesday.
U.S. gold futures were little changed at $1,884.30.
While the macroeconomic background and the weaker dollar is still supportive for bullion, “gold is increasingly starting to show signs that it needs to just consolidate” following a strong rally since April, said Saxo Bank analyst Ole Hansen.
“Generally, the comments from the Fed members yesterday were quite soothing in terms of inflation expectations, that may just have reduced a little bit of the appeal here in the short term,” Hansen said.
Gold is considered a hedge against inflation, but higher interest rates will dull its appeal as they translate into a higher opportunity cost of holding the non-yielding asset.
St. Louis Fed President James Bullard said he expects the inflation rate to be above 2% both this year and next, but comments from several Fed officials, including Bullard, supported the view that policy will remain on hold for some time.
The dollar hit 4-1/2 month lows, making gold less expensive for holders of other currencies.
Market participants were looking to U.S. gross domestic product, jobless claims and durable goods data due on Thursday.
“A risk-on rally in stocks and bitcoin had reduced the appeal of gold as a safe-haven,” Avtar Sandu, senior commodities manager at Phillip Futures, said in a note.
But while gold has lost much of its appeal for investors in 2021 compared to 2020, deep price corrections are still viewed as buying opportunities, Sandu added.
Elsewhere, palladium rose 0.92% to $2,753.21, platinum was up 0.4% to $1,178.52, while silver fell 0.61 % to $27.63.