Gold close to two-week high amid inflation worries

Bengaluru — Gold prices hovered on Wednesday near a two-week high touched in the previous session ahead of a widely expected robust US inflation reading this week, though elevated US treasury yields kept bullion’s gains in check.

Spot gold was up 0.1% at $1,827.37/oz, at 4.23am GMT, holding near previous session’s high of $1,828.68, the highest level since January 26. US gold futures also edged 0.1% higher to $1,829.10.

“Expectations of higher inflation are largely driving the move, as hawkish Fed’s stance is largely priced-in,” said Soni Kumari, a commodities strategist at ANZ.

Gold prices have been stuck in rangebound trade since the beginning of the year, caught between inflation worries and the growing expectation for US Federal Reserve interest rate hikes. US inflation data for January is due on Thursday and expectations are for a 7.3% annual rise, after robust labour data last week boosted the expectation of faster policy tightening by the US central bank.

Gold is often considered a hedge against inflation, yet rate hikes would raise the opportunity cost of holding non-yielding bullion.

Benchmark 10-year US treasury yields held below the November 2019 high reached on Tuesday.

“The focus is on real rates, and although they are higher, they remain negative ... so there is a bit of a push-and-pull here, where on the one hand, real rates are going up, which is gold-negative, but they still remain less attractive than gold,” said Ilya Spivak, currency strategist at DailyFX.

Spot gold may test a resistance at $1,836/oz, a break above could lead to a gain to $1,854, according to Reuters technical analyst Wang Tao.

Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.4% on Tuesday, data showed.

Among other metals, silver rose 0.4% to $23.27/oz, its highest since January 27. Platinum fell 0.2% to $1,030.08 and palladium was down 0.2% to $2,243.67.

Reuters