Gold inches lower as US bond yields offset firm dollar

Bengaluru — Gold prices edged lower on Friday, as a resilient dollar pressured the safe-haven metal, though support from a dip in US bond yields and equities kept the metal above the key $1,750/oz mark.

Spot gold eased 0.2% to $1,753.21/oz by 4.03am GMT, after a slip in the dollar drove the metal to a one-week high on Thursday. It is set for a first weekly gain in four, up 0.1% this week.

US gold futures dropped 0.2% to $1,753.40/oz.

The dollar began the last quarter of 2021 at close to its highest level of the year, raising the cost of purchasing gold for holders in other currencies.

Sentiment was, however, supported by a dip in Asian shares and US 10 year benchmark Treasury yields.

Gold competes with government bonds as an asset used to hedge against risk and uncertainty and decreased returns on bonds makes bullion, which pays no interest, more attractive.

“The gold market is starting to realise the Fed may not be as hawkish as priced in for the speed of tapering and subsequent rate hikes, especially with recent changes in the FOMC [Federal Open Market Committee]," said Stephen Innes, managing partner at SPI Asset Management, referring to the recent retirement of two US Federal Reserve policymakers.

But Innes said he was still cautious on the outlook for gold, especially given the uncertain trajectory of the dollar.

Reduced central bank stimulus and interest rate hikes tend to push government bond yields up, in turn translating into a higher opportunity cost for gold.

Chicago Federal Reserve president Charles Evans on Thursday suggested that inflation could ease next year and low interest rates will still be needed to bring US inflation back durably to 2%.

Silver fell 0.7% to $22.05/oz. Platinum was down 0.8% at $955.49/oz and palladium dropped 0.3% to $1,905.06/oz.

Reuters