Key Points:
- Spot gold was up 0.4% at $1,635 per ounce as the dollar took a breather.
- The non-yielding asset was set for a second weekly drop.
- The Federal Reserve’s hawkish policy narrative clouded the outlook for gold.
Gold prices edged higher on Friday after the dollar took a breather, but the non-yielding asset was set for a second weekly drop as the Federal Reserve’s hawkish policy narrative clouded the outlook.
As of 0243 GMT, spot gold was up 0.4% at $1,635.71 per ounce, but had lost 0.4% so far this week. Gold futures in the United States rose 0.5% to $1,638.20.
The dollar index was down 0.2%, but it was on track for its biggest weekly gain in over a month. Treasury yields in the United States were slightly above 4%. The Fed raised interest rates by 75 basis points on Wednesday, with Chair Jerome Powell promising to “keep at” the fight against inflation.
Powell’s hawkish remarks weighed on gold, and how far the Fed’s peak rate may go remains an unknown, with markets reflecting that caution, as Reuters quoted Christopher Wong, an OCBC FX strategist, as saying.
Gold is regarded as an inflation hedge, but high interest rates reduce the appeal of the non-yielding asset. Rising yields and the dollar, as mentioned by ANZ in a note, are likely to remain headwinds for the precious metal until the Fed turns dovish.
Investors’ attention has shifted to the United States’ non-farm payrolls data, which is due at 1230 GMT and could provide additional clues on the Fed’s rate-hike stance.
On payrolls, an upward surprise to the data would reinforce the Fed’s higher terminal rate posture and keep gold under pressure, but if job gains slow, gold may find support, according to Wong.
Meanwhile, new claims for unemployment benefits in the United States unexpectedly fell last week, indicating that the labor market remains strong despite slowing domestic demand.
Spot silver increased 0.4% to $19.54, platinum remained unchanged at $918.68, and palladium increased 0.6% to $1,811.92.
