Gold traded near the lowest in almost seven weeks as bond yields rose Tuesday and the dollar strengthened, with concerns about inflation rippling through markets.
The benchmark 10-year US yield steadied after touching the highest since June on Tuesday, damping the appeal of non-interest bearing bullion, while a gauge of the greenback was near the highest since November.
During a Senate Banking Committee hearing, both Treasury Secretary Janet Yellen and Fed Chair Jerome Powell maintained that the current high level of inflation in the US is due to temporary supply-chain disruptions and should be expected to dissipate when those issues are resolved.
Still, Fed Bank of St. Louis President James Bullard said he sees “upside risks” to inflation and the central bank should be prepared in case price pressures persist for longer than expected. Earlier this week, Fed Governor Lael Brainard said the labour market may soon meet her yardstick for scaling back asset purchases, while the Covid-19 delta variant could raise upside risks for inflation as supply constraints last longer.
Gold is heading for its biggest monthly loss since June as more central banks start signaling a pullback in stimulus measures used to cushion the economic impact of the pandemic. Last week, Powell said the Fed could begin scaling back asset purchases in November and complete the process by mid-2022.
“With the threat of inflation creeping in faster than expected, central banks like the Fed would most likely begin tapering its bond purchases before tweaking rates,” said Avtar Sandu, senior manager for commodities at Phillip Futures Pte. “Although gold has lost much of its appeal for investors in 2021 as compared to 2020 and the technical picture has deteriorated in favour of the bears rather than bulls, deep corrections of prices are still viewed as buying opportunities.”
“Our market view remains bullish for the long term despite the pressure that prices had from rising global government bond yields and the dollar,” Sandu said in a note.
Spot gold rose 0.4% to $1 740.04 an ounce at 11:02 a.m. in Singapore, after dropping to $1 728.18 on Tuesday, the lowest since August 11. Silver, palladium and platinum all advanced. The Bloomberg Dollar Spot Index steadied after climbing 0.5% Tuesday.
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