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Gold settles up nearly 1% on weaker dollar, shares; eyes on bond yields

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Gold rose up to 1 percent on Tuesday as the dollar and European shares suffered from a sell-off in global bond markets, although higher real yields kept prices under $1,200 an ounce.

Spot gold touched a session high of $1,196.60 an ounce and was last up 0.8 percent at $1,192.90, while U.S. gold futures for June delivery settled $9.40 higher at $1,192.40 an ounce.

The dollar index, which measures the U.S. currency against a basket of major peers, fell 0.5 percent and helped support gold prices. U.S. 10-year yields, which have been driven higher in recent weeks by higher German Bunds, rose to a six-month high above 2.3 percent before losing ground.

Rising yields usually weigh on gold, as they increase the opportunity cost of holding non-yielding bullion. While that pressure has been offset by weakness in other markets, gold remains vulnerable to a further jump in yields.

Gold was helped by a sharp decline in European shares, as it is usually seen as an hedge against risk.

"Today it is two to one in favor of rising gold -- weak U.S. dollar and weak stocks versus rising bond yields," Commerzbank analyst Carsten Fritsch said. "Only one factor needs to switch sides to tip the balance."

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"The 10-year yield on German bunds have risen from below 0.1 percent to almost 0.8 percent, the highest since December last year. Ten-year U.S. Treasury yields have risen to a 6-month high of 2.36 percent today from less than 2 percent in late April. This is negative for gold by pushing up real interest rates."

Investors were also looking at Greece, after a Greek central bank official said the debt-burdened country emptied an emergency IMF holding account to make the payment, avoiding default but underscoring the dire state of the country's finances.

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Though gold prices were firm, a lack of fund interest and the spot market's recent yo-yo pattern prevented any upside potential from developing, said Bill O'Neill, co-founder of commodities investment firm LOGIC Advisors in Upper Saddle River, New Jersey.

"I'm just not in love with the money flow patterns in gold. ETFs, for example, have shown liquidations,'' O'Neill said. "The money flow is not particularly inspiring.''

As a gauge of investor sentiment, holdings in SPDR Gold Trust, the top gold-backed exchange-traded fund, saw the sharpest decline this year on Friday.

Silver rose 1.6 percent to $16.55 an ounce. Platinum rose 0.7 percent to $1,128.99 an ounce, while palladium gained 0.9 percent to $784.60 an ounce.