Dec. 7 (Reuters) – Gold prices edged up on Tuesday, supported by a weaker greenback, although firmer U.S. Treasury yields and expectations that the Federal Reserve could tighten policy more aggressively capped gains from the non-productive asset.

Spot gold was up 0.1% at $ 1,780.60 an ounce, at 0644 GMT. US gold futures gained 0.2% to $ 1,782.40.

The dollar index <.dxy> weakened 0.1%, lowering the cost of gold for buyers holding other currencies.

Partially offsetting a weaker greenback, benchmark 10-year US Treasuries extended their gains overnight. Higher yields generally increase the opportunity cost of owning the non-interest bearing metal.

Fed policymakers are expected to step up their stimulus cuts at its policy meeting next week after data showed unemployment plunged last month, suggesting the labor market is tightening. Read more

Gold is often seen as a hedge against inflation, although reducing stimulus and rising interest rates tend to push up government bond yields, lowering the attractiveness of bullion.

Friday’s report on the US Consumer Price Index could be crucial in assessing the Fed’s next move.

“Gold is expected to slowly fall in the face of a tighter policy and if the CPI comes out warmer than expected, that will only cause a more aggressive Fed to price in,” the analyst said. IG Markets Kyle Rodda.

But, “real yields are still negative so investors might look to diversify from bonds to another store of value, which could support gold,” Rodda said, warning that this would depend on how aggressive the market is. Fed next week and how the Omicron variant affects inflation expectations.

Platinum rose 0.3% to $ 940.50 an ounce and palladium fell 0.6% to $ 1,844.01.

Platinum Group Metals (PGMs) Markets Expected to Tighten Next Year, But Unknown Impact of Omicron Variant Could Slow Price Rise If Auto Parts Supply Chain Blockages Slow Recovery after the chip crisis, “Heraeus Precious Metals analysts wrote in a note.

Platinum and Palladium are used to reduce emissions in vehicle exhaust systems.

Silver rose 0.2% to $ 22.40 an ounce.

Reporting by Nakul Iyer and Seher Dareen in Bangalore; Editing by Rashmi Aich and Sherry Jacob-Phillips

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