Metals

Gold tip-toes up on inflation risks despite strength in yields

A gloved hand stacks bars of gold into a pyramid.
Leonhard Foeger | Reuters

Gold prices edged higher on Monday despite U.S. 10-year Treasury yields hitting a two-year high, as traders hedged their positions against inflation and ongoing geopolitical risks.

Spot gold was up 0.3% at $1,800.76 per ounce by 1148 GMT, recovering slightly from Friday when it hit its lowest since Dec. 16. U.S. gold futures rose 0.2% to $1,800.30.

Gold is holding around the $1,800 area despite the rise in yields, showing that the market is looking at other factors such as the inflationary environment and geopolitical tensions, said Saxo Bank analyst Ole Hansen.

"The weakness in stocks has potentially also added some support to the precious metal market," Hansen said, adding that yields will nonetheless remain in focus this week, along with U.S. CPI inflation data.

U.S. core CPI is expected to have risen by an annual 5.4% in December, up from 4.9% in the prior month, which could stress the need for earlier-than-anticipated interest rate hikes by the Federal Reserve.

Gold is considered a hedge against higher inflation, but rising U.S. interest rates increase the opportunity cost of holding non-yielding bullion.

The rise in yields weighed on stock markets on Monday as investors fretted about the prospect of higher U.S. interest rates.

While there is a chance that yields could move even higher than current levels, the bulk of the initial move has potentially taken place, Hansen said.

Ongoing tensions between the United States and Russia over Ukraine and unrest in Kazakhstan are also stoking geopolitical concerns, he added.

Spot silver rose 0.6% to $22.44, platinum climbed 0.4% to $958.51, and palladium was up 1.2% at $1,957.18.

UBS expects platinum prices to rise to $1,150 per ounce by the end of 2022 and palladium prices to recover to $2,000 per ounce.

"We have a positive outlook for both platinum and palladium, as we anticipate a rebound in demand with the expected easing of auto supply chain constraints, including the chip shortage, during 2022," it said.