Gold inched lower on Friday as the U.S. dollar and Treasury yields firmed, although hopes for additional stimulus in the world’s largest economy kept bullion on course for a second straight weekly gain.
Spot gold eased 0.1% to $1,911.32 per ounce by 0246 GMT, but was up 0.7% so far this week. U.S. gold futures shed 0.1% to $1,912.30.
“The effect of (fiscal stimulus hopes) has driven up inflation expectations, (but) we’re starting to see nominal bond yields climb as well, which is reasonably significant for gold.”
The benchmark 10-year bond yield scaled a fresh high since March, holding above 1%, and helping the dollar rebound strongly to hit a near two-week peak.
A stronger dollar makes bullion more expensive for holders of other currencies, while higher bond yields increase the opportunity cost of holding the non-interest yielding gold.
Democrats’ control of the U.S. Senate has fuelled hopes of large stimulus measures and boosted inflation expectations, underpinning gold’s appeal as an inflationary-hedge.
But higher inflation expectations and bond yields have also bolstered Federal Reserve officials’ hopes that the central bank’s new monetary policy approach is taking hold.
Gold’s long-term trend remains pretty constructive with lower rates and negative real yields, but “if we start to see the Fed back away from its dovishness even just slightly that dynamic could change and start to wear on gold prices,” Rodda said.
Investors now await U.S. non-farm payrolls data due later in the day to gauge the jobs market’s health.
Silver fell 0.2% to $27.05 an ounce. Platinum climbed 0.4% to $1,121.46, while palladium gained 0.2% to $2,424.45.