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Gold Gains 0.4% Despite FOMC Minutes, Dollar Rebound

Gold prices climbed on Thursday, aided by growing U.S. inflationary pressure, although gains were curbed as the dollar rebounded and U.S. Treasury yields rose after Federal Reserve policymakers hinted at a possible shift in future policy.

Spot gold was up 0.4% at $1,877.15 per ounce by 0337 GMT. U.S. gold futures eased 0.2% to $1,877.50.

“What’s driving the prices up and will continue to drive it higher from here is the fact that inflation is now very ingrained. But the U.S. Federal Reserve don’t seem to see it,” ED&F Man Capital Markets analyst Edward Meir said.

“However, the precious yellow metal is in a bit of a tug-of-war, pulled lower by the stronger dollar and an uptick in the U.S. 10-year rates.”

Gold prices rose more than 1% on Wednesday to their highest since Jan. 8, but pared most of the gains as the dollar index bounced off from a near three-month low and benchmark U.S. Treasury yields rose to a near one-week high after the Fed minutes.

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XAUUSD, one year technical performance chart.

Despite the recent strength in Gold prices, Wednesday’s Federal Open Market Committee (FOMC) Minutes appeared to slow inflows as a shift in language hinted to an environment where Treasury rates would likely be higher.

The modest downward pressure on the yellow metal stemmed from the suggestion that if the economic recovery continues at the current pace, discussing a taper of the balance sheet would become appropriate. Pulling back the balance sheet would likely precede a hike in rates, hurting gold.

Minutes of the U.S. central bank’s April 27-28 meeting said a number of policymakers thought if the U.S. economy continued rapid progress, it would be appropriate “at some point” to discuss tightening its accommodative policy.

Recent data showing a rise in prices in the United States and UK intensified concerns over inflation.

Gold is seen as a hedge against inflation, but an increase in rates from the Fed will dull bullion’s appeal as it translates into higher opportunity cost of holding the non-yielding asset.

“Weakening bond yield, building inflationary pressure and a softer dollar have brightened the prospects for gold investment demand,” ANZ analysts said in a note.

“That said, the pandemic wave in India could severely impact the physical offtake of gold in Q2.”

Elsewhere, palladium gained 1% to $2,895.86 per ounce, silver was steady at $27.76, while platinum edged 0.2% higher to $1,193.08.