By Bharat Gautam

(Reuters) – Gold prices recovered from a three month low Wednesday, as the dollar strengthened and Treasury yields fell. This was ahead of important U.S. inflation data which could impact the Federal Reserve’s monetary policy stance. It also may have an effect on bullion demand.

After hitting its lowest level since February 11, it was 0.6% higher at $1,849.245 an ounce as of 0729 GMT. The U.S. gained 0.2% to $1.846.40

Benchmark fell for the third consecutive session. This helped to lift demand for zero yield gold. [US/]

The dollar fell slightly, although at higher levels. That makes greenback-priced bullion attractive for international buyers. [USD/]

Analysts for the U.S. expect a significant pullback in April’s consumer price index (CPI), which is due at 1230 GMT. The CPI will cool to 0.2%, from 1.2% the month before, and an 8.1% annual rise.

Officials from the U.S. central banks defended Tuesday their case for the fastest series of interest rates increases since the 1990s in an effort to fight inflation.

According to DailyFX currency strategist Ilya Spivak: “Gold is at critical price support at $1,830.” If inflation is lower than anticipated, prices may bounce. Investors will prioritise the Fed’s effect on gold rather bullion’s role as an hedge,” said Ilya Spivak.

Spivak stated that gold could break below $1800 if inflation remains in line or slightly hotter. This is the biggest risk.

The opportunity cost to hold bullion is increased by rising short-term U.S. rates.

Stephen Innes of SPI Asset Management, managing partner, stated: “The problem is for gold investors or other commodities that were used as an inflation hedge that the Fed won’t at all raise rates to snuff the inflation fires.”

Spot gold rose 1.6%, to $21.59/ounce. Platinum rose 1.8%, to $981.40. And palladium rose 0.8%, to $2.082.46.