Early Fed rate hike bets hold back gold as virus woes weigh

[BENGALURU] Gold was flat in early Asian trade on Wednesday (Jan 5), as traders weighed prospects of early interest rate increases by the US Federal Reserve against surging Covid-19 infections globally.

Spot gold was little changed at US$1,813.91 per ounce by 1.33 am GMT. US gold futures were flat at US$1,813.80.

Benchmark 10-year Treasury yields rose to their highest in more than a month on Tuesday (Jan 4) as investors were all set for the Fed rate hikes by mid-year to curb stubbornly high inflation.

Higher yields raise the opportunity cost of holding non-interest paying gold.

Futures on the federal funds rate on Tuesday priced in a roughly 66 per cent chance of a quarter percentage-point tightening by March, with investors fully pricing that scenario by May.

Making gold less appealing for other currency holders, the US dollar index hovered near a 2-week high touched on Monday (Jan 3), tracking gains in US Treasury yields.

The United States set a global record of reporting almost 1 million new coronavirus infections on Monday, according to a Reuters tally.

Wall Street's optimistic start to the New Year continued on Tuesday as prices for some stocks, oil and the dollar advanced, but investors dialled back risk-taking elsewhere as data showed US manufacturing slowed and Covid-19 spread.

Spot silver shed 0.1 per cent to US$23.01 an ounce, platinum remained unchanged at US$971.21, and palladium rose 0.1 per cent to US$1,872.63.

REUTERS