Gold Steadies as Traders Weigh Dollar Rise Against Stimulus Bets

(Bloomberg) -- Gold was little changed as traders weighed elevated U.S. Treasury yields and a stronger dollar against expectations for further economic stimulus and an eventual rise in inflation.

Bullion faces increased pricing pressure as the dollar headed for a third straight gain and Treasury yields rose. Still, relatively low interest rates, a record amount of fiscal relief that’s likely to expand and high materials costs are also having an influence. Some analysts see such factors as signaling a drop in real interest rates and helping gold, which is often used as an inflation hedge.

After posting its biggest annual gain in a decade, bullion has endured a turbulent start to 2021. Initial advances were overturned by a surge in Treasury yields, which dampened the appeal of the non-interest bearing asset. Markets are assessing whether stimulus will translate into increased inflation expectations or continue to help fuel a rally in risk assets.

“The markets and the funds don’t really know what lies around the corner, and that creates a lot of intraday volatility as we see today,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “Nominal yields rising is a drag, but at the same time, if we get further expectations for higher inflation, then that drag will eventually fade and potentially turn back into a positive.”

Spot gold was down less than 0.1% at $1,847.36 an ounce by 3:36 p.m. in New York, after earlier falling as much as 1.7%. Prices slid the most in two months on Friday. Silver for immediate delivery declined for a fourth straight session on Monday. Platinum and palladium slipped.

“The increase in long-term yields is also likely to prove temporary,” Carsten Fritsch, an analyst at Commerzbank AG, said in a note. “Real interest rates are still negative in the U.S. because of the increased inflation expectations, and this is likely to remain the case for the foreseeable future. We therefore expect the gold price to begin climbing again before long.”

Gold’s selloff may have become overstretched, said UBS Group AG’s Giovanni Staunovo.

Gold “fell a bit too much in my view last week,” said Staunovo, who expects a rebound. “I would expect real rates to fall again in the short term and the U.S. dollar to again weaken.”

A steep plunge in Bitcoin is fueling concern that the cryptocurrency bubble may be about to burst. Bitcoin slid as much as 21% over Sunday and Monday in the biggest two-day slide since March. Proponents of the world’s largest cryptocurrency have argued that it’s muscling in on gold as a hedge against dollar weakness and inflation risk.

©2021 Bloomberg L.P.