By Bharat Gautam

(Reuters) – Gold stabilized on Thursday, after U.S. inflation data pushed prices up more than 1% in the previous session as traders were cautious about the direction of Federal Reserve policy amid fears of a buildup of underlying inflationary pressures.

Spot gold was nearly flat at $1,852.36 an ounce as of 0350 GMT. US gold futures were little changed at $1,853.30

U.S. consumer price growth slowed sharply in April as gasoline hit record highs, suggesting inflation is likely to have peaked, although it is expected to remain warm for some time and keep the foot on the brakes of the Fed.

Bullion prices hit a three-month low early Wednesday before climbing as much as 1.1% after the consumer price inflation data.

The inflation reading follows the Fed’s aggressive hike in its benchmark overnight interest rate by half a percentage point last week – the biggest hike in 22 years – as she is about to untie her ultra-easy monetary policy in the era of the pandemic.

Bullion bears no interest and is therefore sensitive to rising short-term interest rates and US bond yields. Lower yields on benchmark 10-year Treasury bonds on Thursday, however, reduced the opportunity cost of holding gold.

However, with inflation risks still there, investors will now want gold as a safe haven after the recent selloff, said Brian Lan, managing director at GoldSilver Central dealership, adding that investors also know that once lockdowns in China lifted, there may be more support for precious metals.

Meanwhile, the US dollar stabilized near its 20-year highs, continuing to limit bullion’s gains in the price of the US dollar.

“With rising inflation expectations and evidence of silver flowing into gold, we are wondering if a significant bottom formed yesterday (Wednesday) around $1,830,” said senior analyst Matt Simpson. of the market at City Index, in a note.

Spot silver fell 0.4% to $21.47 an ounce, while platinum fell 0.1% to $991.37 and palladium fell 0.2% to 2,032 $.07.

(Reporting by Bharat Govind Gautam in Bengaluru; Editing by Vinay Dwivedi and Uttaresh.V)

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