PRECIOUS-Gold gains as inflation fears cloud risk sentiment

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* Inflation may push gold higher in the long run – Analyst

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* US CPI, Fed minutes on Wednesday (adds comment, updates prices)

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October 12 (Businesshala) – Gold rose on Tuesday as rising inflation fears dampened investors’ risk appetite and a pullback in US Treasury yields added to the appeal of non-yielding bullion.

Spot gold was up 0.4% at $1,761.41 an ounce as of 1159 GMT, while US gold futures were up 0.4% at $1,762.40.

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A global energy crisis has jeopardized the economic outlook and fueled inflationary fears, prompting some investors to turn to safe-haven assets.

“There is a higher risk in the market and gold is benefiting from this, as well as concerns about inflation and the cooling of the global economy,” said Daniel Breesemann, analyst at Commerzbank.

If stagflation talks unfold swiftly, that should help gold clock $1,900 by the end of the year as interest rates remain relatively low, even if the Fed starts tapering off, Breesemann said.

Gold has traditionally been seen as an inflation hedge. However, lower central bank incentives and higher interest rates boost government bond yields, which translates into a higher opportunity cost for holding no-interest gold.

The benchmark US Treasury yield pulled back after touching its highest level since early June. The dollar index, on the other hand, remained largely stable.

Quantitative Commodities Research analyst Peter Fertig said talk about stagflation is “a bit positive for gold”, but ultimately Fed tapering “is really a threat and the risk is currently higher on the downside than it is on the upside”.

“As long as you have the risk of rising opportunity costs and a strong US dollar, gold is not attractive over the long term.”

The focus is on minutes from the Fed’s September 21-22 policy meeting and the Consumer Price Index scheduled for Wednesday.

Spot silver rose 0.1% to $22.58 an ounce and platinum rose 0.1% to $1,008.89.

Palladium was little changed at $2,112.91. (Reporting by Arundhati Sarkar in Bengaluru; Editing by Amy Caron Daniels and Anil D’Silva)

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