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Gold off 8-month highs as markets brace for U.S. inflation data

FILE PHOTO: Gold vendor sorts pieces inside a shop at the gold market area in Cairo

By Seher Dareen

(Reuters) - Gold prices held steady after touching an eight-month peak on Wednesday as investors positioned themselves ahead of U.S. inflation data that could influence the Federal Reserve's policy path.

Spot gold was steady at $1,877.51 per ounce by 1:40 p.m. ET (1840 GMT). U.S. gold futures settled up 0.1% at $1,878.9.

Prices were trending lower on some "profit-taking from the shorter-term futures traders ahead of the CPI report tomorrow," said Jim Wyckoff, senior analyst at Kitco Metals, adding that the market could continue to trade sideways ahead of the data.

The U.S. consumer price report will be closely watched, after the Fed slowed its pace of rate hikes to 50 basis points in December after four consecutive 75 bps increases.

Traders see a 77% chance the Fed will raise the benchmark rate by 25 bps to 4.50%-4.75% in February, and see rates peaking at 4.92% by June.

Susan M. Collins, the president of the Federal Reserve Bank of Boston, said she was leaning toward a quarter-point interest rate increase at the central bank's next meeting, the New York Times reported on Wednesday.

Gold is considered an inflation hedge, but is highly sensitive to rising interest rates, which increase the opportunity cost of holding non-yielding bullion.

"This could be a big report if we get another good reading that shows inflation falling faster than anticipated," said Craig Erlam, a senior market analyst at OANDA.

While worries linger over the scale and impact of the COVID outbreak in top gold consumer China, "over the longer term, China is expected to bounce back strongly, which could stimulate additional demand", Erlam said.

Spot silver fell 0.9% to $23.40 per ounce, platinum was down 0.5% to $1,075.63 while palladium was unchanged at $1,780.66.

Despite palladium lagging, platinum, gold and silver have been seeing bullish attitudes based upon China's reopening, Wyckoff said.

(Reporting by Seher Dareen in Bengaluru, additional reporting by Swati Verma; Editing by Tomasz Janowski and Shailesh Kuber)