Gold gains on economic risks with US inflation in focus

May 9 (Reuters) – Gold gained on Tuesday as investors sought cover from economic uncertainty while also positioning for the US inflation print for cues on the trajectory of interest rates.

Spot gold was up 0.8% at USD 2,036.56 per ounce by 1:41 p.m. EDT (1741 GMT), while US gold futures settled 0.5% higher at USD 2,042.90.

Equities markets fell on concerns about China’s domestic demand recovery after weak Chinese trade data, and the impasse over the US debt ceiling.

“It’s going to be a risk-off day” as markets await US consumer price index data on Wednesday, said Phillip Streible, chief market strategist at Blue Line Futures, in Chicago.

Hotter-than-expected CPI would bolster bets for rate hikes, but much weaker data could cause “a big rush into commodities across the board and further liquidation in the dollar”, Streible added.

While gold is considered a hedge against inflation, rising interest rates dull non-yielding bullion’s appeal.

Fed Governor Philip Jefferson said the US economy is slowing in an “orderly fashion” allowing inflation to decline even as growth continues. New York Fed chief John Williams said inflation remains too high, but tighter credit should slow the economy, blunting how far the Fed might need to go.

Markets are pricing in an 82% chance of the Fed keeping rates on hold in June and a 33% chance of a cut in July.

Commerzbank analyst Carsten Fritsch, however, wrote in a note that there is no scope for the Fed to implement rate cuts this year.

Investors were also monitoring developments in the US banking sector after a Fed survey released on Monday showed banks tightened credit standards over the first months of the year.

Silver was up 0.4% at USD 25.66 an ounce, while platinum jumped 3.1% to USD 1,103.25. Palladium gained nearly 1% to USD 1,569.02.

(Reporting by Deep Vakil and Arundhati Sarkar in Bengaluru; Editing by Paul Simao and Shilpi Majumdar)