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Gold Up, Breaks Past $1,900-Mark as Inflation Concerns Linger

Gold was up on Wednesday morning in Asia, erasing its 2021 losses as signs of inflationary pressures stoked investor concerns and the U.S. Federal Reserve assured investors on the outlook for monetary policy.

Gold futures were up 0.48% to $1,907.10 by 1:09 AM ET (5:09 AM GMT), soaring past the $1,900-mark and gaining in eight of the past nine sessions.

The dollar, which usually moves inversely to gold, inched down towards a four-and-a-half month low. Benchmark U.S. Treasury yields fell to a two-week low of 1.56% during the previous session.

Fed Vice Chairman Richard Clarida on Tuesday said the central bank could be ready to discuss the slowdown of asset purchases, in an echo of the recent minutes from the Fed’s latest meeting.

"It may well be... there will come a time in upcoming meetings we will be at the point where we can begin to discuss scaling back the pace of asset purchases… that was not the focus of the April meeting. It is going to depend on the flow of data," he said.

"A weaker dollar is helping and growing inflation risks are outweighing everything right now. This is about hedge against inflation right now," SPI Asset Management managing partner Stephen Innes told Reuters.

"Even if inflation is high, they're (the Fed) going to be very, very dovish. What really matters for gold is front-end real rates. The Feds will continue to keep front-end rates low, which is going to weaken the dollar and gold is going to do quite well," Innes added.

Across the Atlantic, European Central Bank policymaker Yannis Stournaras warned that the central bank must keep its money taps fully open as the region’s fight against COVID-19 is far from over despite the progress in the rollout of vaccines.

In Asia Pacific, the Reserve Bank of New Zealand kept its interest rate unchanged at 0.25% as it handed down its policy decision earlier in the day.

Data released in the U.S. on Tuesday also disappointed. The CB Consumer Confidence index for May read 117.2 while new home sales fell to 863,000 in April.

“You have that slight miss on the U.S. data, and bond yields are creeping lower... that’s helping gold. Gold is just acting as a safe haven today,” RJO Futures senior market strategist Bob Haberkorn told Bloomberg.

U.S. Senate Republicans plan to unveil a counteroffer to President Joe Biden's $1.7 trillion infrastructure proposal on Thursday, though one of their leaders said on Tuesday the two sides remain far apart.

In other precious metals, palladium gained 0.3% and platinum rose 0.8%, while silver was steady at $27.99.

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