Gold edged higher as Treasury yields fell, with investors weighing the impact of a sluggish Chinese recovery on global growth and signs the US Federal Reserve is nearing the end of its monetary-tightening cycle.
Concerns about Asia’s largest economy triggered a warning from US Treasury Secretary Janet Yellen about the potential ripple effects, though she reiterated that she doesn’t expect a recession in the US, where the inflation threat is lessening. That’s adding to optimism the Fed may soon pause rate hikes, which are typically negative for gold as it doesn’t bear interest.
Those hopes are stirring positive sentiment toward the precious metal. Inflows into bullion-backed exchange-traded funds on Monday showed holdings ticking higher for a second day following a 19-day run of declines, according to initial data compiled by Bloomberg. Meanwhile, money managers are finding more appeal in gold, having increased net-long positions to a five-week high.
The Fed is virtually certain to raise its benchmark rate by another 25 basis points later this month, according to swaps traders who have been positioning for another hike for weeks. That suggests that the impact of any potential tightening is already priced in for gold.
Looking ahead, investors will be focusing on US retail-sales data later Tuesday, as well as the upcoming US earnings season, for an indication of how consumers are faring against higher rates.
“More Fed tightening might need to get priced in if corporate America is too optimistic about both a recession being avoided and that consumer resilience will remain,” said Ed Moya, senior market analyst at Oanda.
Spot gold rose 0.3% to $1,960.63 at 1:53 p.m. in Singapore, after gaining almost 2% over the previous two weeks. The Bloomberg Dollar Spot Index fell. Silver, platinum and palladium all climbed.
