USD Inflation and Weaker Treasury Bond Boosts Gold Again

The price of gold fell -0.37% a day ago. It then rose slightly, as the weakening of Treasury bond yields and the inflation of the U.S. dollar boosted its attractiveness.

As of 1:50 pm, spot gold fell 0.4% to US$1,892.89 per ounce. E.T. has risen by 1.5% in the past two days. U.S. gold futures fell 0.2% to US$1,895.40 per ounce.

Rising price pressures may continue to support gold. It is widely regarded as a tool for value preservation and a hedge against inflation. On the demand side, Chinese buyers have returned to the gold and silver market since April. It happened after the People’s Bank of China eased restrictions on non-monetary gold imports to meet growing domestic demand. Since then, China’s gold imports have increased significantly. As the world’s third-largest gold importer, Chinese buyers may provide medium-term support for gold prices.

Traders are curious about Thursday’s U.S. inflation data to find clues about rising U.S. price levels and their impact on the Fed’s monetary policy.

In May, the U.S. headline inflation rate should be 4.7%, the highest level since 2008. Significant deviations from this expectation may lead to increased market volatility, especially stocks, foreign exchange, and precious metals. Although higher-than-expected readings may boost the precious metals, they may also trigger waning concerns and weaken their earnings. This mixed dynamic makes gold prices vulnerable to increased volatility during and after the data.

The price of gold is facing selling pressure above the psychological resistance level of $1,900. However, a breakthrough of US$1,900 may open the door to further upside potential.

What about Gold ETFs?

Driven by solid price performance and continued inflation concerns, demand for gold has improved. As a result, investors have returned to gold-backed ETFs.

Earlier this week, the World Gold Council reported that after three consecutive months of net outflows, gold ETF inflows of US$3.4 billion in May. Globally, gold ETF assets under management are 222 billion U.S. dollars, slightly less than 9%, close to the August 2020 peak.

WGC’s senior analyst said in the report: “Gold is still a promising asset for investors, because market behavior continues to be controlled by inflationary pressures, coupled with the strengthening of the U.S. dollar and the decline in real yields, the rise in gold prices further proves this.”

Central banks worldwide expect gold reserves to increase in the next 12 months. Most of them cited the uncertainty of the economic recovery from the COVID-19 pandemic as a reason for buying gold.