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Gold Edges Up as Dollar Eases Even as US Inflation Accelerates

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Gold edged higher early on Thursday as the dollar eased, while a key U.S. inflation measure accelerated last month.

Gold for August delivery was last seen up 0.7% to US$4,035.40 after falling to the lowest since Nov. 6 a day earlier.

The U.S. Bureau of Economic Analysis on Thursday reported that May personal consumption expenditures index, the Federal Reserve's preferred inflation measure, rose at a 4.1% annualized pace, matching expectations but up from 3.8% in April. Core PCE, excluding volatile items, rose 3.4% annualized, up from 3.3% a month earlier, but again matching expectations.

The price of the precious metal is down 12% over the past month, falling as investors turn to the greenback amid inflation concerns. The Fed's policy committee last week warned it may raise interest rates this year to combat rising costs, boosting the dollar and sending traders away from gold, which pays no interest.

"The latest leg lower has been driven by the dollar's week-long surge, with the greenback posting a fresh 13-month high on Wednesday," Ole Hansen, head of commodity strategy at Saxo Bank, wrote. "It continues to benefit from carryover support following last week's hawkish FOMC message, which revived speculation that U.S. interest rates may need to rise later this year. For non-interest-paying metals, that has lifted the perceived cost of holding exposure at a time when investor confidence is already fragile."

However the dollar edged down early, with the ICE dollar index down 0.1 point to 101.29. Treasury yields were little changed, with the U.S. two-year note down 2.7 basis points to 4.131%, while the yield on the 10-year note was steady at 4.391%.

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