Gold price climbs over 1% on falling bond yields

Gold prices rose by over 1% on Tuesday as US bond yields fell for a second straight day following dovish commentary from a key European Central Bank official.

Spot gold was up 1.2% to $1,979.88 an ounce by 12:40 p.m. EDT, setting a new one-month high. US gold futures rose 1.5% to $1,985.40 an ounce in New york.

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Prior to this, bullion has been consolidating around the $1,950 level as investors wait for a clearer outlook on the Federal Reserve’s monetary policy path. While swaps traders see a hike at its next meeting as virtually guaranteed, consensus becomes more divided from there, Bloomberg noted.

Tuesday’s data showed US retail sales rising less than expected, a potentially welcome sign for the Fed as it seeks to cool inflation. Still, figures excluding automobile and gas purchases were in line with forecasts, pointing to relatively robust consumption.

Earlier in the day, ECB Governing Council member Klaas Knot, known for his hawkish stance, said in a Bloomberg TV interview that monetary tightening beyond next week’s meeting is anything but guaranteed.

Global bond yields, including US Treasuries took another hit following the comments, boosting non-interest bearing gold. The US dollar index also wobbled near more than a one-year low, making bullion more affordable to buyers holding other currencies.

Inflows into bullion-backed exchange-traded funds on Monday showed holdings ticking higher for a second day following a 19-day run of declines, according to data compiled by Bloomberg. Meanwhile, money managers are finding more appeal in gold, having increased net-long positions to a five-week high.

“The technical posture for the gold market has improved significantly, there’s strong support around $1,950. Gold can certainly move towards $2,000 if incoming data suggests the Fed will back off after one more hike this month,” Jim Wyckoff, senior market analyst at Kitco, told Reuters.

While the retail data boosted the idea of a less hawkish Fed materializing by the end of this year, which would help gold, prices could fall to the $1,900 range if the central bank goes the other way, Wyckoff added.

Over the short-term period, gold could trade in a range until there is more clarity on how the US central bank views the recent data, UBS analyst Giovanni Staunovo said.

Traders are pricing in another 25-basis-point rate hike at the Fed’s meeting next week.

(With files from Bloomberg and Reuters)