The price of gold eased from the multi-month high touched during the previous session, when it came within a whisker of $4,700. Demand for the precious metal has increased after the US Treasury launched efforts to soothe the bond market by increasing purchases of long-dated bonds. As a result, Treasury yields have fallen, reducing the opportunity cost of holding non-yielding gold. At the same time, the US-Iran conflict appears to be entering a new phase, with military confrontation giving way to economic pressure. Financial markets have so far viewed this development favourably, leading to lower oil prices and easing inflationary fears, with bets on a Federal Reserve rate hike this year declining as a result. This dynamic has kept the US dollar subdued against its peers, increasing the attractiveness of gold for buyers using other currencies. Against this backdrop, investors will pay close attention to the release of US PCE inflation figures, due later today. PCE is the Fed’s preferred inflation measure, and a surprise reading would be likely to shift expectations for the central bank’s interest rate path. A higher-than-expected number could strengthen the dollar and weigh on bullion, while a lower reading would most likely have the opposite effect, creating further upside for the precious metal.
Ricardo Evangelista, ActivTrades
Source: ActivTrader
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