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Gold futures on Wednesday climbed modestly higher as a rise in U.S. Treasury yields took a breather. However, the dollar, a catalyst for precious metals remained around its highest levels since November, keeping assets priced in the currency in check.
December gold was trading $4.90, or 0.3%, to reach $1,742.30 an ounce, following a 0.8% decline on Tuesday, pushing the most-active contract to the lowest settlement since Aug. 10, FactSet data show.
On Wednesday, the popular ICE U.S. Dollar Index
DXY,
was up 0.1% for the day, and the index is up 0.6% so far this week and 2% over the past quarter.
“Gold and silver prices have been hit by a new rebound of the U.S. dollar and by the rise of the 10-year yields,” wrote Carlo Alberto De Casa, analyst at Kinesis Money, in a daily note.
On Tuesday, gold and other precious metals, which don’t offer a coupon, were under pressure as the benchmark 10-year Treasury debt
TMUBMUSD10Y,
rose to the highest yield since June 25 and the 30-year long bond
TMUBMUSD30Y,
hit its highest rate since July 1, according to data compiled by Dow Jones Market Data. Bonds compete against gold for safe-haven demand and higher yields can undercut the comparative appeal of the precious metal.
De Casa notes that the moves in precious metals are driven by the “perception that the current inflation will not be as ‘transitory’ as predicted by central banks in the past few months.” he wrote.
“This scenario will probably force the Federal Reserve to begin tapering (the process of reducing the liquidity in the system) as soon as November,” he wrote.
The rise for Treasury yields had subsided for now, with the 10-year Treasury note at 1.517%, versus 1.534% on Tuesday.
Trading in gold on Wednesday also comes as global equity markets are trying to rebound from a selloff that saw the S&P 500
SPX,
register its worst percentage fall since May 12.
