Gold ticks higher on inflation anxiety, but firm US dollar caps gains

THU, MAY 20, 2021 - 2:01 PM
 

[BENGALURU] Gold prices climbed on Thursday, aided by growing US inflationary pressure, although gains were curbed as the dollar rebounded and US Treasury yields rose after Federal Reserve policymakers hinted at a possible shift in future policy.

Spot gold was up 0.3 per cent at US$1,875.74 per ounce by 0525 GMT. US gold futures eased 0.3 per cent to US$1,876.20.

" What' s driving gold and will continue to drive it higher from here is the fact that inflation is now very ingrained. But the Fed doesn' t seem to see it," ED& F Man Capital Markets analyst Edward Meir said.

" However, gold is in a bit of a tug-of-war, pulled lower by the stronger dollar and an uptick in the US 10-year rates."

Gold prices rose more than 1 per cent on Wednesday to their highest since Jan 8, but pared most of the gains as the dollar index bounced off from a near three-month low and benchmark US Treasury yields jumped after the Fed minutes.
 

Fed minutes published on Wednesday showed " a number" of officials thought that if the recovery holds up, it might be appropriate to " begin discussing a plan for adjusting the pace of asset purchases" .

Recent data showing a rise in prices in the US and the UK intensified concerns over inflation.

Gold is seen as a hedge against inflation, but an increase in rates from the Fed will dull bullion' s appeal as it translates into higher opportunity cost of holding the non-yielding asset.

" Weakening bond yield, building inflationary pressure and a softer dollar have brightened the prospects for gold investment demand," ANZ analysts said in a note.

" That said, the pandemic wave in India could severely impact the physical offtake of gold in Q2."

Spot gold may retest a resistance at US$1,893 per ounce, according to Reuters technical analyst Wang Tao.

Palladium gained 0.9 per cent to US$2,894.14 per ounce, silver was steady at US$27.76, while platinum rose 0.4 per cent to US$1,195.09.

REUTERS

• Fed officials at their April meeting said &ldquo it might be appropriate at some point&rdquo to consider tapering asset purchases if the economy shows &ldquo rapid progress,&rdquo according to the meeting minutes.
• Markets briefly sold off on the news as investors have been looking for clues about policy changes.
• Officials remained largely unconcerned about inflationary pressures, which they see as transitory.