Flat US bond yields and prospect of tighter policy weigh on gold

Bengaluru — Gold prices were flat on Monday, as the metal was caught between subdued US bond yields and the prospect of the Federal Reserve tightening policy at a faster pace, which dimmed its appeal.

Spot gold was little changed at $1,782.95 per ounce by 6.19am. US gold futures were flat at $1,783.60.

US 10-year Treasury yields hovered near a more than two-month low hit on Friday. Thirty-year Treasury yields were also close to their lowest since the start of this year. Weaker yields decrease gold’s opportunity cost.

Bullion rose 1% on Friday after data showed US employment growth slowed considerably in November.

But the data did little to alter expectations of the Fed tapering its stimulus measures at a faster pace, as policymakers likely respond to signs of a tightening labour market with the unemployment rate plunging to a 21-month low.

The Fed’s two-day policy meet is set to begin on December 14.

“A faster taper announcement looks like a certainty if data on the Omicron variant this week and next confirms it is milder in severity, so gold could come under sustained pressure and potentially trade as low as $1,720 next week,” said Jeffrey Halley, senior market analyst at Oanda.

Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of non-interest bearing gold.

Market participants now eye US consumer price data on Friday.

“An annual print above 7.0% could see US yields steepen once again, and gold will move lower,” Halley said, adding that any potentially rally in gold back above $1,800 will be fragile and lack momentum.

Spot silver fell 0.1% to $22.48 an ounce. Platinum rose 0.4% to $935.74, while palladium declined 0.1% to $1,807.83.

Reuters