Gold caught in tussle over inflation and bond yields

Bengaluru — Gold edged lower on Tuesday as rising US Treasury yields and expectations of aggressive rate hikes by the Federal Reserve dimmed the appeal of non-yielding bullion.

Spot gold was down 0.2% at $1,929.43 an ounce, at 9:33am GMT, trading in a narrow range. US gold futures eased 0.1% to $1,932.

“The market remains torn between those investors looking towards gold as an offset against inflation, growth worries and high volatility in the bond market ... Against that we have the continued rise in yields,” said Saxo Bank analyst Ole Hansen. “We’re seeing a new peak in the US real yields and that’s really just keeping the [gold] market fairly locked in a range.”

Yields on 10-year Treasury inflation-protected securities, which are indexed to US CPI, rose to the highest in almost two years on Tuesday. Two-year Treasury yields were near their highest level since early 2019, while the 10-year yields also gained. The dollar index steadied after rising for three straight sessions, supported by safe-haven flows on prospects of more sanctions on Russia.

Rising US interest rates increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which the metal is priced. Markets are waiting to see whether Wednesday’s release of minutes from the Fed’s last policy meeting offers signs of the central bank raising its benchmark overnight interest rate by 50 basis points next month.

“The market seems to believe that the Fed will succeed in regaining control of the current very high inflation by raising interest rates,” Commerzbank analyst Daniel Briesemann said in a note. “That gold is holding its ground despite the increased real interest rates is a sign of strength.”

Spot silver rose 0.6% to $24.65 an ounce, platinum fell 0.6% to $980.61 and palladium gained 1.1% to $2,298.99.

Reuters