Gold price extends rally to hit 2-month high

Gold extended its rally on Monday despite facing pressure from rising US treasury yields, as investors try to maneuver around market-wide expectations that key central banks will keep interest rates low in the near term.

Spot gold continued its momentum from last Friday, up 0.4% to $1,824.27 per ounce by noon EDT, its highest in two months. US gold futures gained 0.5% to $1,825.70 per ounce in New York.

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“Gold is drifting after the very strong finish on Friday…traders are still not convinced we have enough ammunition in the gold market to challenge the key area of resistance at $1,820 an ounce,” Saxo Bank’s Ole Hansen commented in a Reuters report.

The precious metal ended last week about 2% higher after the US Federal Reserve maintained its view inflation was transitory, and as the Bank of England surprised markets by holding rates.

“Yields ticking up a few basis points is potentially enough to trigger some profit taking in gold,” Hansen added.

In the meantime, benchmark 10-year yields rose after touching a one-and-a-half-month low in the previous session, increasing the opportunity cost of holding bullion.

Gold has been benefiting from an ultra-low interest rate environment to spur growth during the pandemic. However, the possibility that central banks will start tightening policy to combat rising inflation have kept investors on the lookout for economic data.

Tightness in the labor market combined with dislocation in global supply chains could result in another high reading for US consumer prices due on Wednesday, according to Reuters, with any upside surprise likely to rekindle talk of an earlier Fed hike.

However, IG Markets analyst Kyle Rodda predicts that “inflation data will have to be markedly above expectation for any sort of jolt back into the fear of higher interest rates.”

(With files from Reuters)