By Barani Krishnan
Investing.com - Gold logged a second-straight weekly gain, indicating that investors in the yellow metal were getting adjusted to a rising dollar and spiking U.S. bond yields as the “new normal” they had to navigate in a higher inflation environment.
Gold for April delivery settled up $9.20, or 0.5%, at $1,741.70 an ounce on New York’s Comex.
For the week, the benchmark futures gold contract was up 1.3%, extending a similar gain from the previous week.
Gold rose on the week despite yields benchmarked to the 10-year Treasury note hitting a 13-month high above 1.7% on Thursday and the Dollar Index soaring to the key 92 level on Friday — developments that were negative to the yellow metal.
“The next few months will be very tricky in identifying what will be the primary catalysts for bullion investors,” said Ed Moya, analyst at New York’s OANDA. “Wall Street will remain fixated on the bond market selloff and recent disdain for technology stocks.”
Moya said gold was beginning to gain some investor attention because rising Treasury yields will eventually be countered by action from the Federal Reserve. “The S&P 500 index won’t be able to climb higher if mega-cap tech stocks don’t get their groove back and any hesitancy in that trade should trigger some safe-haven flows into gold.”
Investor uncertainty grew this week after Fed Chairman Jay Powell in his monthly news conference on Wednesday declined to give any hint of the central bank buying more bonds than previously. Surging yields since the start of the year have been limiting the rally in risk assets.
Powell said the U.S. jobless rate will likely continue declining from February’s 6.2% while inflation expands 2.4% this year against expected overall GDP growth of 6.5% in an economy rebounding from a pandemic-stricken 2020. But these still weren’t enough to raise interest rates, the Fed Chair said.
Surging bond yields have been an anathema to gold, forcing the yellow metal to lose 17% from record highs of nearly $2,100 in August. Any indications by the Fed that it will intensify bond buying in the coming months could just be the thing to clamp down on surging yields and spark a rally in gold.
For decades, gold was touted as the best store of value whenever there were worries about inflation. Yet, in recent months, it was deliberately prevented from being the go-to asset for investors as Wall Street banks, hedge funds and other actors shorted the metal while pushing up U.S. bond yields and the dollar instead.
Bond yields have surged on the argument that economic recovery in the coming months could extend beyond Fed expectations, leading to spiraling inflation, as the central bank insists on keeping interest rates at near zero.
The dollar, which typically falls in an environment of heightened inflation fears, also rallied instead on the same runaway economic recovery logic. The greenback’s status as a reserve currency has bolstered its standing as a safe haven, leading to new long positions being built in the dollar. That had further capped any rebound in gold prices.