Gold inches higher on weaker US bonds

Gold edged higher on Monday, supported by a weakness in bond yields as investors await US inflation data due later this week for more clarity on the Federal Reserve’s interest rate path after a dovish pivot last week.

Spot gold was up 0.3% at $2,023.29/oz, as of 3.12am GMT. US gold futures edged 0.1% higher to $2,037.10.

“The yields are on a slippery slope after the FOMC [federal open  market committee] meeting last week and that’s allowing some further upside in the gold price,” Tim Waterer, chief market analyst at KCM Trade, said.

Benchmark US 10-year treasury yields were hovering near their lowest level since July. Lower bond yields reduce the opportunity cost of holding gold, which does not pay interest.

The Fed held interest rates steady last week and signalled that the tightening of monetary policy engineered over the past two years is at an end and lower borrowing costs are coming in 2024.

However, New York Fed president John Williams pushed back against surging market expectations of rate cuts and said that “we aren’t really talking about rate cuts right now” at the Fed and it’s “premature” to speculate about them.

Markets are now pricing in about a 70% chance of a Fed rate cut in March, according to CME FedWatch tool.

Traders are awaiting a slew of US economic data this week, including the November core personal consumption expenditure (PCE) index report on Friday. Analysts forecast core PCE rose 0.2% last month, with the annual inflation rate slowing to its lowest since mid-2021 at 3.4%.

“Softer macro data from the US this week would support the case that the Fed could be more aggressive next year with rate cuts. So that would bring the dollar and bond yields lower and would suit the gold price,” Waterer said.

Spot silver gained 0.3% to $23.89/oz, while platinum rose 0.2% to $941.52 and palladium slipped 1.6% to $1,154.96.

Reuters