Gold Gains as U.S. Dollar Weakens, Bond Yields Climb

(Bloomberg) — Gold rose as the U.S. dollar weakened and risk sentiment improved across global equities markets.

Earnings optimism helped European and U.S. equities futures pare losses, triggered by the prospect of imminent tightening on monetary policy by the U.S. Federal Reserve. The greenback fell amid an increasingly positive mood, causing gold to edge higher.

“The uptick in yields, in conjunction with the firm U.S. dollar that appreciated significantly yesterday, is probably the main factor weighing on gold,” Daniel Briesemann, an analyst at Commerzbank AG, wrote in a note.

Briesemann added that there is unlikely to be “any noticeable or lasting price rise” for gold before the Fed meeting next week. “If the interest rate speculation persists, a further price slide is on the cards,” he wrote.

Bullion remains under pressure from a surge in Treasury yields that’s stirring expectations the U.S. 10-year value will top 2%.

A March rate hike is expected and will be the first of many increases this year, according to Bloomberg Economics. While a quarter-point increase is still the most likely scenario, swap markets are now pricing in more than 25 basis points of tightening by the end of March. The yield on 10-year Treasuries spiked to the highest since January 2020, weighing on demand for non-interest bearing bullion.

Gold has mostly held above $1,800 an ounce so far in January, after dropping in 2021 for the first time in three years as central banks globally started dialing back on pandemic-era stimulus. Still, bullion’s traditional role as an inflation hedge and the uncertainty over omicron’s impact is supporting demand for the haven asset.

Spot gold was 0.2% higher at $1,818.04 an ounce at 12:16 p.m. in London, after dropping 0.3% on Tuesday. The Bloomberg Dollar Spot Index fell 0.3% after adding 0.4% in the previous session. Silver, platinum and palladium all gained.