Gold futures on Tuesday extended a modest gain, with the precious metal supported by expectations for higher inflation and volatility in financial markets, with investors keeping watch on Jerome Powell’s confirmation hearing for a second four-year term as Federal Reserve Chairman.
Read: 4 mistakes the Powell Fed made—from a former insider
The modest advance for bullion comes as yields for government debt and the dollar have been climbing, which would usually serve as a headwind for the dollar-priced commodity that doesn’t offer a coupon.
“Despite yields on 10-year Treasury notes surpassing 1.80%, gold prices have been moving up as it is considered a hedge against inflation and investors are expecting inflation to continue rising in coming months as well,” wrote Naeem Aslam, chief market analyst at AvaTrade, in a daily research report.
Bullion is viewed a hedge against inflation and has traditionally been perceived as safe-haven asset.
February gold
GCG22,
GC00,
rose $8.70, or 0.5%, to reach $1,807.50 an ounce, following a nearly 0.1% rise to start the week. Gold is looking at a third consecutive settlement in positive territory, which would mark the longest string of gains since a seven-session stretch ended Nov. 12.
March silver
SIH22,
SI00,
was also trading 18.8 cents, or 0.8%, higher at $22.65 an ounce, after gaining 0.2% on Monday.
On Tuesday, the 10-year Treasury note
TMUBMUSD10Y,
was yielding 1.762%, down slightly from 1.779% at 3 p.m. Eastern Time Monday, while the dollar was trading little changed, but holding on to a 0.3% advance for the week so far, as measured by the ICE U.S. Dollar Index
DXY,
The market is currently expecting the Fed’s first rate hike in March and may start reducing its balance sheet shortly thereafter, said Peter Grant, vice president and senior metals strategist at Zaner Metals, in a recent newsletter.
If that happens, “scope is seen for 10-year yields to test the 2% level in the near term, which should continue to provide support for the dollar and make gains in gold above $1,800 difficult to sustain,” he said.
This week, the market will be watching inflation data closely, said Grant. The December U.S. consumer-price index is due Wednesday and producer price data will be released Thursday.
“Inflation is likely to remain hot, but stocks are already expressing their displeasure with the Fed’s new hawkish tone,” Grant said. “That puts the Fed in a bit of a bind as they are already well behind the curve after maintaining for far too long that inflation was ‘transitory’.”
Powell on Tuesday is expected to tell a Senate panel that the U.S. central bank will take steps to make sure higher inflation seen over the past year won’t be allowed to develop deep roots in the economy.
For now, “diminished risk appetite could provide some haven support for gold along with the desire to hedge those inflation risks,” said Grant.
On Tuesday, U.S. benchmark stock indexes traded mostly lower, with the Dow Jones Industrial Average
DJIA,
down 0.6%.
Among other Comex metals, March copper
HGH22,
added 0.8% to $4.388 a pound. April platinum
PLJ22,
tacked on 0.8% to $941.40 an ounce, while March palladium
PAH22,
traded at $1,912.50 an ounce, up 0.2%.
