(Bloomberg) – Gold rallied as the US dollar weakened and risk sentiment improved in global stock markets.
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Optimism about earnings helped European and US stock futures offset losses, spurred by the prospect of an imminent tightening of monetary policy by the US Federal Reserve. The dollar fell amid a growing positive mood, causing gold to rise.
“The slight rise in yields, in conjunction with the strong US dollar that rose significantly yesterday, is probably the main factor affecting gold,” Daniel Pressman, analyst at Commerzbank AG, wrote in a note.
Pressman added that it was unlikely there would be “any significant or lasting price hike” for gold before the Federal Reserve meeting next week. He wrote, “If interest rate speculation continues, there will be more price slippage.”
Bullion remains under pressure from rising Treasury yields raising expectations that the US 10-year value will exceed 2%.
A rate hike is expected in March and will be the first of many increases this year, according to Bloomberg Economics. While a quarter-point increase remains the most likely scenario, swap markets are now pricing in more than 25 basis points to tighten by the end of March. The yield on 10-year Treasuries rose to the highest level since January 2020, affecting demand for non-interest bearing bullion.
Gold has mostly settled above $1,800 an ounce so far in January, after falling in 2021 for the first time in three years as central banks globally began returning to pandemic-era stimulus. However, the traditional role of metal alloys as a hedge against inflation and uncertainty about the omicron effect supports the demand for safe-haven assets.
Spot gold was up 0.2% at $1,818.04 an ounce at 12:16 pm in London, after falling 0.3% on Tuesday. The Bloomberg Dollar Spot Index fell 0.3% after adding 0.4% in the previous session. It gained silver, platinum and palladium.
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