Gold bounces back after worst month since late 2016 as bond yields steady

Gold rebounded after its biggest monthly slump since late 2016 as the dollar retreated and investor focus remained on bond yields and the outlook for growth.

Last week’s sell-off in global bonds stabilized after central banks from Asia to Europe provided reassurance that policy support remains in place. That’s helped to somewhat calm markets and pull Treasury yields back from their highest level in a year. Bets on accelerating inflation are raising concerns that there could be a pullback in monetary policy support despite assurances from the Federal Reserve that higher yields reflect economic optimism for a solid recovery.

Gold is rising “on expectations that Treasury yields have peaked for the time being,” said Avtar Sandu, a senior manager for commodities at Phillip Futures Pte. “Deep corrections of prices due to short-term fluctuations are viewed as buying opportunities.”

Bullion’s had a rocky start to the year as the higher Treasury yields weighed on demand for the non-interest-bearing metal and as the roll-out of vaccinations worldwide spurred optimism about a recovery from the pandemic. Over the weekend, the US House of Representatives passed President Joe Biden’s $1.9 trillion Covid-19 aid package and the bill now heads to the Senate.

Spot gold rose 1.2 per cent to $1,754.81 an ounce by 6:53 a.m. in London, after slumping 2.1 per cent to the lowest close since mid-June on Friday. That brought the loss in February to 6.2 per cent, the most since November 2016. Silver, platinum and palladium all climbed. The Bloomberg Dollar Spot Index fell 0.3 per cent.

“Bond markets continue to signal the end of the interest rate reduction cycle,” said Michael McCarthy, chief market strategist at CMC Markets. “If the inflationary pressures reflected by sharply lower bond prices are evident by mid-year, central banks will have little choice but to wind back their current support. A falling gold price shows that the main concerns are about higher rates, over-riding any safe haven attraction to the yellow metal.”