Gold inches up but strong dollar, bond yields weigh

Gold inches up but strong dollar, bond yields weigh

US gold futures were up 0.7% at $1,734.10 per ounce

Representative image. Credit: iStock Photo

Gold prices edged higher on Thursday, after hitting a seven-week trough in the previous session, although a robust dollar and elevated US Treasury yields kept pressure intact.

Spot gold rose 0.4 per cent to $1,733.55 per ounce by 9:04 am, slightly recovering from their lowest level since August 9 at $1,720.49 hit on Wednesday. US gold futures were up 0.7 per cent at $1,734.10 per ounce.

Weighing on gold were expectations that the US Federal Reserve could start reducing its pandemic stimulus, which kept the dollar index near a one-year high.

A stronger dollar makes gold more expensive for buyers holding other currencies.

"Gold is consolidating before maybe another major leg lower," said DailyFX currency strategist Ilya Spivak, pointing to the Fed's move towards tapering and a steeper rate hike cycle than markets initially expected.

"While there are ample risks that could help gold break higher, like weaker economic data or the Evergrande debt crisis potentially spilling over into other economies, these are unlikely to provide lasting support."

A break below $1,700 could see gold test the $1,675-$1,680 level, Spivak said.

Two Federal Reserve officials said on Wednesday they were in favour of the central bank beginning to wind down its monthly asset purchases this year.

Adding to bullion's woes, benchmark US 10-year Treasury yields edged up and held above 1.5 per cent, a level not seen since late June.

Gold is traditionally seen as an inflation hedge, but reduced central bank stimulus and interest rate hikes tend to push up yields on government bonds, in turn translating into a higher opportunity cost for gold, which pays no interest.

Silver rose 0.2 per cent to $21.56 per ounce. Platinum gained 0.6 per cent to $956.23 and palladium was up 0.7 per cent at $1,870.18.

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