Gold falls as dollar, yields rise ahead of inflation data

Sept. 10 (Reuters) - Gold retreated on Thursday, erasing earlier gains, pressured by a firmer U.S. dollar and rising bond yields, while investors awaited key U.S. inflation data for clues on the Federal Reserve's interest-rate path.

Spot gold XAU= slipped 0.4% to $4,385.40 per ounce by 1125 GMT while U.S. gold futures GCcv1 fell 0.7% to $4,427.80.

"I think part of the drop in metals prices is to do with the U.S. dollar coming back, ahead of inflation data. And we are looking at even higher bond yields in the U.S. and elsewhere," said Fawad Razaqzada, a market analyst at Forex.com.

The U.S. dollar index gained, making greenback-priced bullion more expensive for buyers overseas.

Markets are awaiting U.S. producer price index data due at 1230 GMT, followed by consumer price inflation data on Friday.

Fresh energy-induced inflation pressure pushed global bond yields higher, with benchmark 10-year Treasury yields hitting their highest levels since 2023 as a U.S. Treasury buyback programme of longer-dated bonds also disappointed.

"Concerns about the bond market in the U.S. is growing with the long dated yields continuing to rise despite the Treasury buyback program.... that's kind of been a drop in the ocean," Razaqzada added.

Rising bond yields typically pressure gold as they increase the opportunity cost of holding the non-yielding asset.

A majority of economists polled by Reuters expect the Fed to hold interest rates steady at its September 15-16 meeting and for the rest of this year.

Still, traders are pricing in about a 62% chance of a rate hike next week, according to the CME FedWatch Tool.