Gold prices extended their gains on Friday morning, rising for a second consecutive session and reaching $4,200 per ounce for the first time this week. The precious metal is benefiting from a weaker US dollar and declining Treasury yields, reversing some of the losses recorded earlier in the week. The retreat in US bond yields follows a period of sharp increases, driven by concerns over inflation and expectations of further monetary tightening by the Federal Reserve. Strong demand at yesterday's auction of 30-year US Treasury bonds helped ease some of that pressure, while investors continue to assess the extent to which the Fed may need to raise interest rates further. The dollar has also lost some momentum, providing additional support to gold. Lower yields reduce the opportunity cost of holding non-yielding assets, like gold, while a weaker dollar makes the precious metal more attractive to buyers using other currencies. However, the prospect of further interest rate increases in the US continues to limit the upside potential for bullion. Markets still anticipate another rate hike before the end of the year, and any renewed increase in Treasury yields or strengthening of the dollar could put the precious metal under pressure again. At the same time, geopolitical uncertainty, concerns over government debt and continued central bank demand remain supportive. Against this backdrop, while the underlying outlook for gold remains positive, further monetary tightening could prevent a more sustained recovery in the short term.
Ricardo Evangelista, ActivTrades
Source: ActivTrader
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