Gold eases as U.S. yields edge higher; stumbling dollar caps losses

Gold is considered an inflationary hedge, but the metal is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion.

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New YORK : Gold prices edged lower on Thursday as benchmark 10-year Treasury yields recovered some losses, but the precious metal stayed close to last session’s one-week high as the dollar extended its slide.

Spot gold was 0.1% lower at $1,823.24 per ounce by 1020 GMT. U.S. gold futures fell 0.3% to $1,822.20.

In the previous session, bullion rose to $1,827.92, its highest since Jan. 5.

“Gold’s performance is in a way slightly disappointing, bearing in mind the pretty seismic collapse in the U.S. dollar.. gold might have performed as one would expect it to, but hasn’t gotten to the big $1,835 per ounce figure, considering the inflation data,” said Ross Norman, an independent analyst.

Data on Wednesday showed U.S. consumer prices surged in December, with the annual increase in inflation the largest in nearly four decades, cementing expectations the Federal Reserve will start raising interest rates as early as March.

Gold is considered an inflationary hedge, but the metal is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion.

The U.S. 10-year yield edged higher after falling in the last session, while the dollar index dipped to a two-month low.

“The dollar may regain its mojo on rate hike bets with Treasury yields pushing higher. Should this become a reality, gold could be in store for fresh pain down the road,” FXTM analyst Lukman Otunuga said in a note.

On a technical basis, gold has the potential to push higher towards $1,845 if a daily close above $1,831 is achieved, Otunuga said, adding that a decline back below $1,810 could prices move lower towards $1,800, $1,786 and $1,770.

Spot silver rose 0.2% to $23.15 an ounce, platinum fell 0.3% to $974.49, and palladium was little changed at $1,910.60.

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