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Gold Prices Remain Steady Despite Dollar Moves

gold prices steady
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EDITOR'S NOTE: Weighing inflation against rate hikes can be tricky when facing the potential opportunity cost of holding gold. Will bonds provide a better return, or will inflation severely minimize that return or render it negative? Additionally, the effect of rate hikes isn’t immediate, despite the market’s quick reaction to those hikes. Some economists would argue that it takes a minimum of six months to see the effect of the last rate hike; sometimes it’ll take even longer. That’s a long time to remain undecided when it comes to rebalancing a portfolio. That gold prices have remained steady and rangebound over the last month and a half is a testament to this uncertainty. With GDP and PCE data coming in this week, we can only guess whether the data may be compelling enough to give gold a sense of direction. Again, hedging a portion of your portfolio is not about betting on a direction. It’s about hedging risk regardless of direction. Though mainstream investors often parrot the notion that gold is a safe haven asset and not to be treated as a speculative bet, too many seem bent on speculating as to when might be the most profitable time to bet on safe-haven assets.

KEY POINTS
  • Spot gold was little changed at $1,822.19 per ounce.
  • U.S. gold futures ticked lower 0.1% at $1,822.8.

Gold prices steady on Tuesday, despite an uptick in the dollar and U.S. Treasury yields, as investors awaited policy cues from the ECB central bankers’ forum underway in Portugal.

Spot gold was little changed at $1,822.19 per ounce. U.S. gold futures ticked lower 0.1% at $1,822.8.

“Gold seems to be acting in a manner of its own, brushing aside movements across other parts of the market and just consolidating around the $1,830 mark,” OANDA analyst Craig Erlam said, adding, rising yields could ultimately push gold lower.

Traders are looking out for any indications about the outlook for inflation and then comments from the Fed, the ECB, on how they’re going to approach this, Erlam added.

President Christine Lagarde told the ECB conference on Tuesday that euro zone inflation was undesirably high but with the outlook for both growth and inflation uncertain, the ECB would move gradually with the option to act decisively on any deterioration in medium-term inflation.

Gold seemed to hold its ground despite a reversal upward in the dollar , which usually dims bullion’s appeal for overseas buyers, and a climb in U.S. 10-year Treasury yields.

“Gold remains a traders’ market – vulnerable to false breaks and quick turnarounds on little news,” City Index senior market analyst Matt Simpson said.

Bullion has found some support from worries about a recession, analysts said, despite the headwinds from elevated rates, especially from the U.S. Federal Reserve, which increase the opportunity cost of holding the non-yielding asset.

It could also be taking cues from gains in the wider commodity complex to some extent, said Quantitative Commodity Research analyst Peter Fertig.

But gold is in competition with other investments like money market instruments and its appeal will be hampered if interest rates continue rising in response to inflation, Fertig added.

Spot silver fell 0.2% to $21.10 per ounce, platinum gained 0.9% to $915.6704 and palladium climbed 0.2% to $1,874.48.

Originally published on CNBC.

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