By Myra P. Saefong and Mark DeCambre
Gold futures settled higher for a second day in a row on Wednesday, as support from concerns over a rise in inflation outweighed pressure from strength in U.S. Treasury yields.
For now, “we see investors are more interested in gold price because they believe that inflation is likely to remain anchored for some time,” Naeem Aslam, chief market analyst at AvaTrade, told MarketWatch. “Gold is a decent hedge against inflation hence we see the gold price in demand.”
“In relation to the gold price, the most important thing for investors is the upcoming manufacturing PMI data which will be coming on Friday,” he said.
Investors will also listen in to a number of speeches from Federal Reserve members this week.
Fed Governor Randal Quarles told the 2021 Milken Institute Global Conference Wednesday that he wants to focus more attention on whether inflation will drop back down towards the Fed’s 2% target than on the labor market. He said he most of his colleagues on the Fed’s interest rate committee expect inflation to begin its descent toward 2% over the next year.
Also, the Fed Beige Book on current U.S. economic conditions, released shortly after gold futures settled for the session, said the economy is growing at a “modest to moderate rate” and that most parts of the country report “significantly elevated prices.”
December gold /zigman2/quotes/210039437/delayed GCZ21 +0.52% /zigman2/quotes/210034565/delayed GC00 +0.52% climbed by $14.40, or 0.8%, to settle at $1,784.90 an ounce, ahead of the Beige Book report. Shortly after the report’s release, gold futures were at $1,786.40 in electronic trading.
Prices based on the most-active gold contract marked their highest finish since Oct. 14, FactSet data show.
The yellow metal has gotten some traction this week as the dollar has softened, with the ICE U.S. Dollar Index /zigman2/quotes/210598269/delayed DXY +0.12% , down 0.4% so far this week, while gold was headed for a weekly advance of around 1%.
A weaker dollar can make assets priced in the currency more attractive for buyers using other currencies. Lackluster U.S. housing data on Tuesday was blamed for contributing to weakness in the greenback a day ago.
December silver /zigman2/quotes/210319421/delayed SIZ21 +0.92% climbed along with gold, edging up by 56 cents, or nearly 2.4% to $24.445 an ounce.
Analysts are expecting gold to eventually face stiffening headwinds from the Federal Reserve if the central bank is compelled to lift benchmark interest rates faster than had been previously anticipated to cool a rise in inflation.
“Much has been said about the concerns over high inflation and how, in such a scenario, the tightening of policies by the Federal Reserve is likely to support the dollar and, due to the inverted correlation between the two assets, generate weakness for the precious metal,” write Ricardo Evangelista, senior analyst at ActivTrade, in a Wednesday note.
Worries about a quicker pace of interest rate increases, with expectations growing that the Fed will commence a rollback of its COVID-era asset purchases has pushed the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00% to its highest rate in about five months.
Among other metals traded on Comex, December copper /zigman2/quotes/210059552/delayed HGZ21 +0.84% rose 0.7% to $4.735 a pound. January platinum /zigman2/quotes/222209103/delayed PLF22 +2.48% tacked on 0.5% to $1,052.30 an ounce, but December palladium /zigman2/quotes/221433715/delayed PAZ21 -1.18% settled at $2,082.40 an ounce, down 0.9%.