Gold steadied after posting the biggest weekly loss in 15 months as the Federal Reserve’s hawkish shift damped reflation bets.
Inflation risks may warrant the US central bank beginning raising interest rates next year, St. Louis Fed President James Bullard said Friday. His comments came after last week’s Fed meeting where officials signaled monetary policy tightening could start earlier than expected, with Chair Jerome Powell saying that the Fed would begin a discussion about scaling back bond purchases used to support financial markets and the economy during the pandemic.
Bullion has been weighed down by concerns over tighter monetary policy, although Powell cautioned that discussions about raising interest rates would be “highly premature.” He’s due to testify at a House Subcommittee hearing on the Fed’s pandemic emergency lending and its asset purchase programs Tuesday. The yield on 10-year Treasuries extended declines.
“Gold may be temporarily oversold and some investors are taking this opportunity to buy the dips,” said Margaret Yang, a strategist at DailyFX. “However, prices may be vulnerable to further pullback if the Fed signals a firm stance on tapering.”
“Meanwhile, although the short-term Treasury yields have edged higher significantly, the longer-dated 10-year real yields have declined over the past three days,” said Yang. “Falling longer-dated real yields may cushion the selloff in gold as the opportunity cost of holding the non-interest-bearing metal decreases.”
Spot gold rose 0.5% to $1 772.46 an ounce at 10:09 a.m. in Singapore. Prices fell 6% last week, the most since March 2020. Silver and palladium both advanced, while platinum dropped. The Bloomberg Dollar Spot Index steadied after rising 2% last week.