Gold Holds Steady as Strong Dollar and Higher Yields Counter Inflation Risks

Gold and silver bars

Gold prices remained stable on Monday as inflation hedge demand offset hawkish comments from the Federal Reserve officials. Chairman Jerome Powell said the U.S. economy is ready for a tighter monetary policy. It signaled that the central bank is preparing to raise interest rates in March.

Powell’s remarks boosted both the dollar and yields. The greenback maintained its gains and made the bullion more expensive for investors using rival currencies. The U.S. 10-year Treasury yields climbed close to a two-year peak. It raised the opportunity cost of holding the non-interest-bearing metal.

Spot gold is currently trading at $1,829.49 per ounce as of 0820 GMT.

Howie Lee, an economist with OCBC Bank, commented that gold has been locked in sideways consolidation. But he maintained that there is still some lingering demand for the metal as an inflation hedge.

On the technical front, Reuters technical analyst Wang Tao predicted spot gold prices to remain in the $1,815-$1,830 range. A break from that level could point to a new price direction, he said.

DailyFX strategist Margaret Yang said the bullion could drop to $1,816 per ounce as robust economic from Japan and China bolstered risk sentiment. Prices have already pulled back from an immediate resistance level at $1,824 or 38.2% Fibonacci retracement.

Despite this, gold prices remain in the range-bound setup, just waiting for the next catalyst. Yang noted that the MACD indicator is trending up, which suggests upward momentum. She placed immediate resistance at $1,834. A breach from that level could open the door for further gains.

In physical trading, gold demand in India faltered due to higher prices and rising COVID-19 cases. Local gold prices went up by almost 1% this week. The number of new coronavirus cases was 264,202, which brings the countries total tally to 36.58 million. The situation prompted retail buyers to delay their purchases.

Demand in China and Singapore was firm ahead of the Lunar New Year festivities. The level of premiums in China indicates firm interest in gold, but not exceptional. Singaporean dealers charged a slightly higher premium this week as there was increased buying for gifting.

Meanwhile, market participants are waiting for statements from Fed officials ahead of the January policy meeting. They are also monitoring the Bank of Japan’s policy meeting, the release of British inflation data and Australia’s job figures.