Gold prices subdued in early trade as investors await US inflation data

Gold prices steadied near a more than nine-month low on Wednesday, as cautious investors awaited monthly U.S. inflation data for cues on the road ahead for the Federal Reserve's monetary policy.

Spot gold was up 0.1% at $1,727.89 per ounce at 0239 GMT, after dropping to its lowest level since late-September at $1,722.30 earlier. U.S. gold futures were flat at $1,725.30.

"Traders are teetering on the edge of their seats ahead of U.S. CPI", and currency and gold investors are probably executing on a need-only basis, said Stephen Innes, managing partner at SPI Asset Management.

Economists polled by Reuters expect the U.S. Labor Department's June Consumer Price Index (CPI), due later in the day, to have accelerated on both a monthly and annual basis, by 1.1% and 8.8%, respectively.

Barring a major surprise, the CPI data could coalesce investors' expectations for a 75-basis-point interest rate hike by the Fed later this month, as the U.S. central bank seeks to rein in inflation.

With the market convinced the Fed will go with the jumbo hike at its July meeting, it feels like long positions in gold are still swimming upstream, but data showing inflation has peaked could mitigate rate hike pressure and gold should catch a small flyer, Innes said.

Although gold is seen as an inflation hedge, higher rates draw investors away from bullion, which bears no interest.

The dollar held near 20-year highs, continuing to make greenback-priced gold less attractive for buyers holding other currencies. [USD/]

Benchmark U.S. 10-year Treasury yields rose, decreasing the appeal of non-yielding gold. [US/]

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.17% to 1,021.53 tonnes on Tuesday from 1,023.27 tonnes on Monday. [GOL/ETF]

Spot silver firmed 0.4% to $18.97 per ounce, platinum was flat at $845.51, and palladium gained 0.2% to $2,031.06.