Gold scales 8-month high as Fed slowdown prospects lift appetite

Gold prices extended gains to an eight-month high on Monday as a weaker dollar made greenback-priced bullion cheaper for overseas buyers while investors bet on a less-aggressive rate-hike trajectory from the U.S. Federal Reserve this year.

Spot gold was up 0.7% at $1,878.06 per ounce, as of 0557 GMT, its highest level since May 9, 2022. U.S. gold futures also rose 0.7% to $1,881.90.

The dollar index slipped 0.3%.

"Softer U.S. data on Friday boosted gold's appeal. Data suggests that Fed's cumulative tightening in 2022 is starting to have its effects felt on the economy and that the Fed can afford to slow its pace of tightening," said OCBC FX strategist Christopher Wong.

Friday's data showing a moderation in U.S. wage gains and a December contraction in the services industry activity drove a nearly 2% gain in gold prices.

Traders will now turn to Fed Chair Jerome Powell's speech at a central bank conference in Stockholm on Tuesday and U.S. consumer price index data due this week for further clues on the pace of rate hikes.

"This week's CPI data would be key. Another deceleration in price pressures could boost appetite for gold while the dollar stays under pressure. However, an unexpected uptick in CPI may unnerve sentiments," Wong added.

Higher interest rates dim gold's allure as an inflation hedge and raise the opportunity cost of holding the non-yielding asset.

Also in focus was top bullion consumer China's decision to reopen its borders.

"Industrial demand could be exponential in the short term as large manufacturers come back on line," said Clifford Bennett, chief economist at ACY Securities.

Spot silver gained 1% to $24.04 and palladium was up 1% at $1,822.62, while platinum fell 0.2% to $1,088.38.

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