Gold firms as inflation risks counter higher US yields, dollar

[BENGALURU] Gold prices edged higher in choppy trade on Friday (Feb 4) as growing inflation worries helped cushion pressure from a firmer dollar and higher US Treasury yields after a surprisingly upbeat US jobs data.

Spot gold was up 0.1 per cent at US$1,805.95 per ounce by 6.41 pm GMT, after hitting a 1-week high earlier in the session. Bullion is up 0.8 per cent so far this week.

US gold futures settled 0.2 per cent higher at US$1,807.80.

"We continue to see inflationary pressures build in the economy. As a result, the expectation is the Federal Reserve will take measures to fight it," said David Meger, director of metals trading at High Ridge Futures.

"However, this creates the push-pull we're seeing in the gold market supported by those inflationary pressures."

An unexpected jump in US job growth in January fanned fears around inflation and weighed on risk sentiment among investors. Data showed US nonfarm payrolls increased by 467,000 jobs last month.

Oil prices also surged to 7-year highs, adding to existing inflationary pressures.

Gold is considered a hedge against inflation, but interest rate hikes would raise the opportunity cost of holding non-yielding bullion.

Meanwhile, benchmark 10-year yields hit their highest in over 2 years after upbeat US jobs data bolstered the case for rate hikes by the Fed. The dollar gained and made bullion expensive for overseas buyers.

Gold prices have retreated since scaling a 1-1/12 month high in late-January after the Fed signalled an interest rate hike in March.

On the technical front, "the US$1,800 level is key for gold and if gold can continue to hover around it, that would be very positive for bullion bulls", Edward Moya, senior market analyst at brokerage Oanda, wrote in a note.

Silver rose 0.2 per cent to US$22.44 per ounce, platinum dropped 1.1 per cent to US$1,021.96 and palladium declined 1.2 per cent to US$2,297.63. REUTERS