Gold tip-toes up on inflation risks despite strength in yields

By Seher Dareen

(Reuters) - Gold prices ticked higher on Monday despite U.S. 10-year Treasury yields hitting a two-year high, as traders hedged their positions against inflation and ongoing geopolitical risks.

Spot gold was 0.2% higher at $1,799.78 per ounce by 1035 GMT, recovering slightly from Friday when it hit its lowest since Dec. 16. U.S. gold futures rose 0.1% to $1,798.70.

Gold is holding around the $1,800 area despite the rise in yields, showing that the market is looking at other factors such as the inflationary environment and geopolitical tensions, said Saxo Bank analyst Ole Hansen.

"The weakness in stocks has potentially also added some support to the precious metal market," Hansen said, adding that yields will nonetheless remain in focus this week, along with U.S. CPI inflation data.

The rise in yields weighed on stock markets on Monday as investors fretted about the prospect of higher U.S. interest rates.

U.S. core CPI is expected to have risen by an annual 5.4% in December, up from 4.9% in the prior month, which could stress the need for earlier-than-anticipated interest rate hikes by the Federal Reserve.

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

Spot silver rose 0.8% to $22.47 an ounce, platinum inched up 0.3% to $958.30, and palladium was up 0.6% to $1,944.65.

UBS expects platinum prices to rise to $1,150 per ounce by the end of 2022 and palladium prices to recover to $2,000 per ounce.

"We have a positive outlook for both platinum and palladium, as we anticipate a rebound in demand with the expected easing of auto supply chain constraints, including the chip shortage, during 2022."

 

(Reporting by Seher Dareen in Bengaluru; Editing by Kirsten Donovan)