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Gold futures headed higher on Wednesday, with the precious metal attempting to finish in positive territory for the first time in four sessions.
The modest rise for bullion comes as the U.S. dollar has softened and Treasury yields have slipped, after a sharp rise, helping to raise investment interest in the precious metal.
Given the calls for even more interest-rate hikes this year than markets are pricing in, not to mention larger individual increases than we’ve seen for many years, “perhaps we are seeing some inflation hedging from traders that don’t think central banks are doing enough to bring price pressures down,” said Craig Erlam, senior market analyst at OANDA, in a market update. Gold has often been used as a hedge against inflation.
At last check, February gold
GCG22,
GC00,
was adding $25.20, or 1.4%, to reach $1,837.60 an ounce, following declines in each of the past three trading sessions.
The recent rise in yields, with the 10-year Treasury note yield
TMUBMUSD10Y,
rising near 1.90%, had helped to undercut appetite for precious metals, which compete against government debt for haven debt but don’t offer buyers a coupon. On Wednesday, however, yields eased back a bit to 1.858%.
Turbulence in the equity markets and weakness in the dollar, which gold is usually priced in, has helped to mitigate some of its decline, strategists said. The ICE U.S. Dollar Index
DXY,
a measure of the dollar against a half-dozen major currencies, was trading 0.2% lower on Wednesday but has been up 0.4% this week.
“The rise in Treasury yields and expectations of higher interest rates are having a negative toll on gold prices,” wrote Naeem Aslam, chief market analyst at AvaTrade, in a daily note.
“However, higher volatility and slump in equity markets has helped the precious metal to cap its losses to some extent,” the analyst said. The Dow Jones Industrial Average
DJIA,
the S&P 500 index
SPX,
and the Nasdaq Composite Index
COMP,
are all down sharply for the week and the month, so far.
The prospects of a series of interest-rate hikes by the U.S. Federal Reserve has had the greatest negative effect on gold because higher rates dull the appeal of nonyielding gold and silver. The rate-setting Federal Open Market Committee next gathers on Jan. 25-26.
“Investors should understand that higher interest rates raise the opportunity cost of holding the non-interest bearing asset, making it less appealing for investors,” Aslam said.
Meanwhile, silver for March delivery
SIH22,
was rising 53.3 cents, or 2.3%, to trade at $24.025 an ounce, following a 2.5% gain on Tuesday.
Silver, which also draws buyers who look at gold’s sister metal as an industrial asset, is looking at a 4.8% weekly advance. Gold futures are up around 1.1% so far this week.
Other metals traded on Comex gained, with March copper
HGH22,
up 2.1% at $4.475 a pound.
April platinum
PLJ22,
tacked on 4.9% to $1,027.70 an ounce and March palladium
PAH22,
traded at $2,021 an ounce, up 6.1%.
Both platinum and palladium “should firm once the auto sector’s chip shortage is mitigated and vehicles start selling again,” said Peter Grant, vice president and the Senior Metals Strategist at Zaner Metals and Tornado Precious Metals Solutions, in his latest newsletter.
While electric vehicles are the future, “major manufacturers are not really going to be phasing out [internal combustion engine] vehicles for 10-years or more,” he said. During that time, platinum group metals loading in catalytic converters will “likely increase amid ever tighter emission standards.”
