Gold prices rise as weaker bond yields deflect rampant dollar

Gold prices rose on Wednesday, as a rally in U.S bond yields stopped. It gains were limited by sustained strength in the dollar and impending aggressive monetary policy decisions.

Spot gold rose 0.2 percent to $1,704.60 per ounce at 09:47 GMT, having dropped to its lowest since Sept. 1 at $1,690.10. U.S.

Gold futures rose 0.2 percent to $1,716.80.

Benchmark 10-year U.S. Treasury yields declined, lowering the opportunity cost of holding zero-yield bullion. There might be some buying activity below $1,700, but as long as the U.S. Federal Reserve sticks to its hawkish tone, expect gold prices to fall further, according toa statement of UBS analyst Giovanni Staunovo.

He also stated that higher interest rates lower gold’s appeal. A stronger dollar, supported by increasing U.S. interest rates is not helping gold, Staunovo added.

“I don’t see the European Central Bank influencing gold directly, more indirectly via the FX foreign exchange rate.”

The ECB is this week expected to deliver a second big rate rise to tame record-high inflation just as a cutting of supplies from a major Russian gas pipeline fans further inflation and recession fears in Europe.

The Fed is mostly expected to get a 75 basis point rate rise later this month. The U.S. central bank has increased its benchmark overnight interest rate by 225 basis points in total since March to fight soaring inflation.

“It is hard to see how gold can make any gains given such a hawkish environment, yet there clearly remains some underlying support for the metal that is at least enabling it to hold around the key threshold of $1,700,”, market analyst at Kinesis Money Rupert Rowling noted.