Gold Rises on Lower Treasury Yields, Rate Hike Bets Limit Gains

gold coins

On Monday, gold prices inched higher as the U.S. Treasury yields declined slightly. But the bullion’s gains were capped by the possibility of aggressive rate hikes by the Federal Reserve. The yellow metal fell around 1% on Friday and was still trading below last week’s peak.

Spot gold is currently trading at $1,852.46 per ounce as of 0801 GMT.

IG market strategist Yeap Jun Rong commented that markets would likely be more sensitive to the Fed’s policy cues after the recent U.S. job report. They will also monitor guidance from the ECB and the RBA this week. Jun Rong noted that higher oil prices failed to lower inflation, and it would likely pressure central banks to tighten monetary policy more aggressively.

On Friday, the Labor Department reported that nonfarm payrolls increased by 390,000 in May, beating economists’ forecast of 318,000. The unemployment rate held at 3.6%, while the average hourly earnings and labor force participation both crept higher. Analysts said the robust data raised the possibility of more rate hikes the year. The Fed is on track for 50 basis-point hikes in its June and July policy meetings.

In Europe, investors ramped up their bets that the European Central Bank (ECB) will raise interest rates this year. They expect a 50 basis-point hike in the bank’s October policy meeting. Meanwhile, money markets priced in 100 bps hikes by October and 125 bps hikes by the end of the year. The ECB is under pressure to control inflation which hit a record 8.1% in May.

On the technical front, FXStreet analyst Anil Panchal said gold prices recovered inside a rising wedge. He said the bullion portrays a three-week-old rising bearish pattern despite the positive MACD and Relative Strength Indicator. Panchal also highlighted gold’s failure to breach the convergence of the 50-day and 100-day EMAs and the wedge’s resistance line at about $1,875.

In physical trading, gold demand in India faltered due to higher prices. On Friday, local prices reached near their highest level for the month. Demand would weaken further as the wedding seasons end and the monsoon season begins. In China, trading remained slow. Consumers are still wary of purchasing gold, and retailers are cautious about replenishing their stock due to fears of another virus outbreak.

In a related development, Ghana’s gold production dropped 30% last year to hit the lowest level in more than a decade. It dislodged as Africa’s top producer. Meanwhile, Sibanye Stillwater has settled a strike at its gold operations in South Africa.