Gold rallies on dollar retreat as markets grapple with OPEC surprise

By Deep Kaushik Vakil

(Reuters) - Gold rallied 1% on Monday as the dollar's retreat burnished bullion's appeal as a safe-haven after a surprise output cut by OPEC+ rekindled fears of prolonged inflation and triggered uncertainty about the central bank response.

Spot gold gained 0.9% at $1,984.75 per ounce by 1:45 p.m. EDT (1745 GMT). U.S. gold futures settled 0.7% higher at $2,000.40.

"We're getting hit consistently by big major events here and that is keeping investors nervous," said Edward Moya, senior market analyst at OANDA, referring to the global banking turmoil that pushed gold nearly 8% higher last month.

The shock decision by OPEC+ is "really driving that inflation hedge trade for gold", Moya added.

While gold has struggled to gain from its traditional status as a hedge against inflation since higher interest rates to combat the rising prices also dim appeal for zero-yield bullion, the surprise cut on Monday also drove a sharp retreat in the dollar, in which bullion is priced. [USD/] [O/R]

Also burnishing gold's appeal, U.S. manufacturing activity slumped to the lowest level in nearly three years in March amid tightening credit conditions, extending losses for benchmark 10-year Treasury yields. [US/]

Earlier in the session, gold brushed against a four-session low of $1,949.55. [MKTS/GLOB]

That seemed to be a "knee jerk reaction" to the dollar's initial rise, said StoneX analyst Rhona O'Connell.

Bullion reversed course later on, mirroring a flip in the dollar.

However, analysts said higher interest rates could still prove a headwind for gold later on.

"Gold is now vulnerable to a move down to $1,900, given the potential for a higher terminal Fed rate that markets are currently pricing in," said Matt Simpson, senior market analyst at City Index.

Silver fell 0.7% to $23.91 per ounce, platinum was down 0.5% at $986.07, while palladium was mostly flat at $1,460.52.

(Reporting by Deep Vakil in Bengaluru; Editing by Josie Kao and Shilpi Majumdar)