Gold strengthens as dollar and treasury yields weaken

Bengaluru — Gold prices rose on Tuesday, supported by a weaker US dollar and treasury yields, as traders awaited December inflation data and weighed bets for quicker interest rate hikes.

Spot gold rose 0.3% to $1,806.00 an ounce by 2.32am GMT. US gold futures were up 0.3% at $1,804.90.

“Pullback in both the US dollar and 10-year treasury yields are supporting gold prices, but the fact that markets are still seeing three to four interest rate hikes this year is limiting the upside potential,” said Margaret Yang, a strategist at DailyFX.

The yield on 10-year treasury notes inched away from an almost two-year high of 1.808% to 1.778%.

Gold is considered a hedge against high inflation, but the metal is sensitive to rising US interest rates which increase the opportunity cost of holding non-yielding bullion. Goldman Sachs now expects the US Federal Reserve to raise interest rates four times this year, matching the view of analysts at JPMorgan and Deutsche Bank.

The dollar eased against a basket of currencies as traders looked to incumbent Fed chair Jerome Powell’s nomination hearing for new clues on the timing and pace of policy normalisation.

“Markets are seeing 5.4% year-on-year growth in core inflation and if numbers surpass this forecast, we may see the dollar moving up even higher and gold prices dropping. However, if the inflation rate comes below expectation, that may provide some relief for gold,” Yang said.

The US core consumer price index is expected to have risen by an annual 5.4% in December, up from 4.9% in the prior month, which could stress the need for earlier-than-anticipated rate hikes by the Fed.

Spot silver was up 0.4% to $22.55 an ounce, platinum gained 1% to $949.28, and palladium rose 0.5% to $1,921.74.