Commodity Market: Gold eases on higher US bond yields, but heads for second week of advance

Spot Gold was a notch weaker on Friday, pressured by higher US Treasury yields after red-hot CPI inflation numbers reported yesterday.

US 10-year bond yields soared overnight after the latest report by the Bureau of Labor Statistics showed annual consumer price inflation had accelerated to 7.9% in February, in line with market expectations and also the highest rate since January 1982. Core CPI inflation accelerated to 6.4% last month, which has also been a 40-year high. Those numbers locked in expectations that the Federal Reserve will probably hike interest rates at its policy meeting next week.

Although Gold is often used as a hedge against inflation, it tends to be very sensitive to increases in US interest rates. It is so, as higher rates usually translate into higher opportunity cost of holding Gold which pays no interest.

Still, the precious metal was heading for its second straight week of advance after negotiations between Russia and Ukraine failed to make some progress. The armed conflict triggered a rush to safe haven assets, while pushing Gold prices to highs not seen since August 2020.

“To a large degree it’s going to be a war-driven trade again. But what’s going to cap sentiment in the absence of any war-time escalation is the FOMC, which is going to be a little bit more hawkish than what markets have currently priced in,” Stephen Innes, managing partner at SPI Asset Management, was quoted as saying by Reuters.

As of 9:24 GMT on Friday Spot Gold was edging down 0.24% to trade at $1,991.41 per troy ounce. Earlier this week the yellow metal rose as high as $2,070.63 per troy ounce, which has been its strongest price level since August 7th 2020 ($2,075.282 per troy ounce).

The commodity looked set to register its second consecutive week of gains, while being up 1.18%.

Gold futures for delivery in April were edging down 0.12% on the day to trade at $1,997.90 per troy ounce, while Silver futures for delivery in May were up 0.08% to trade at $26.277 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging up 0.15% to 98.670 on Friday. Earlier this week the DXY went up as high as 99.418, which has been its strongest level since May 26th 2020 (99.773).

Near-term investor interest rate expectations were little changed. According to CME’s FedWatch Tool, as of March 11th, investors saw a 95.9% chance of the Federal Reserve raising interest rates to the 0.25%-0.50% range at its policy meeting on March 15th-16th, compared to a 94.9% chance on March 10th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,992.00
R1 – $2,013.48
R2 – $2,030.70
R3 – $2,052.18
R4 – $2,073.66

S1 – $1,974.78
S2 – $1,953.30
S3 – $1,936.08
S4 – $1,918.86