Gold Set for First Back-to-Back Weekly Gain Since Early January

(Bloomberg) -- Gold rose, heading for its first consecutive weekly gains since January as the dollar wavered and investors assessed demand for the metal as a hedge against inflation.

Equities fluctuated and Treasury yields retreated from the highest levels of the day, easing pressure on bullion. The Bloomberg Dollar Spot Index was little changed after rising earlier.

Bullion has steadied after two straight monthly losses that came as inflation concerns pushed up bond rates, curbing the appeal of the non-interest-bearing metal. While gold has dropped about 8% this year with investors rotating out of havens into riskier assets, its role as a hedge against inflation has helped provide some support to prices. Nervous equity investors are giving additional assistance, according to Commerzbank AG.

“The tug of war continues between rising bond yields (which are weighing on gold) and the nervousness on the stock markets (which is tending to lend support),” Eugen Weinberg, an analyst at Commerzbank, said in a note. “We currently expect gold to bottom out in the coming weeks.”

The Federal Reserve said it’ll let a significant capital break for big banks expire at month’s end. The reprieve was granted in April as a response to coronavirus that allowed lenders to load up on Treasuries and deposits without setting aside capital to protect against losses. The Fed’s decision initially saw the benchmark 10-year yield jump and the dollar advance, pulling gold lower earlier in the session.

“The SLR exemption let banks not count Treasuries as assets so they wouldn’t have to hold as much capital against it,” Tai Wong, head of metals derivatives trading at BMO Capital Markets, referring to the so-called supplementary leverage ratio.“There has been angst that if that expired, banks would sell Treasuries, resulting in higher yields and a higher USD. Gold is reacting to that.”

Spot gold was up 0.4% to $1,743 an ounce at 2:26 p.m. in New York, and is on track for a 0.9% gain this week. Futures for June delivery on the Comex climbed 0.5% to settle at $1,743.90 an ounce. Silver rose and platinum declined.

“Even with yields hitting new highs, gold is not hitting new lows because of short-term positioning,” said Marcus Garvey, head of metals and bulk and commodity strategy at Macquarie Group Ltd. In the longer-term, gold will continue to fall on rising yields and improving employment data after the pandemic, he said.

Meanwhile, palladium dropped 1.8% but is on track for an 11% surge this week. MMC Norilsk Nickel PJSC cut its 2021 output targets following flooding at its Arctic mines, which is spurring expectations of a larger-than-expected deficit. The Russian company, which produces 40% of global supply of the metal, may turn to the central bank’s stockpiles to meet its obligations, according to people familiar with the matter.

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