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Gold price hits highest since November on falling bond yields, dollar

Bulls winning the battle. Credit: Wikimedia Commons.

Gold prices rose to their highest in two months Wednesday as yields fell across the US Treasury curve and the dollar weakened.

Spot gold was up 1.4% to $1,839.69/oz by 12:00 p.m. EDT, a level not seen since November. US gold futures gained 1.6% as well, trading at $1,841.10/oz in New York.

[Click here for an interactive chart of gold prices]

Gold was supported by the return of volatility in the equities market. US stocks pared early gains on Wednesday as investors continue to assess the prospects for earnings growth. Falling bond yields and a weaker greenback also helped boost bullion’s appeal.

Gold has mostly held above $1,800/oz in January, after recording its first annual loss in three years as major central banks worldwide started dialing back on pandemic-era stimulus.

Still, bullion’s traditional role as an inflation hedge, plus the uncertainty over omicron’s impact on the global economy, is supporting demand for the safe haven asset.

“Given the calls for even more rate hikes this year than markets are pricing in, perhaps we’re seeing some inflation hedging from traders that don’t think central banks are doing enough to bring price pressures down,” Craig Erlam, an analyst at brokerage OANDA, told Bloomberg.

A March rate hike is expected and will be the first of many increases this year, according to Bloomberg Economics. While a quarter-point increase is still the most likely scenario, swap markets are now pricing in more than 25 basis points of tightening by the end of March.

“The drop in yields has driven a technical breakout in gold, but it may still trade within the overall $1,800 to $1,840 range until the US Federal Reserve meeting next week,” said OANDA’s senior market analyst Ed Moya in a separate Reuters report.

(With files from Bloomberg and Reuters)