Gold prices gain following a pull-back in yields, dollar

Gold bars and coins are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, August 14, 2019. REUTERS/Michael Dalder

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  • U.S. 10-year Treasury yields down 5 BPS on the day
  • Platinum and palladium rises over 3%

May 3 (Reuters) – Gold firmed on Tuesday tracking a slight retreat in U.S. Treasury yields and dollar, while investors eyed an aggressive interest rate hike from the U.S. Federal Reserve when it concludes its two-day policy meeting.

Spot gold was up 0.7% to $1,875.10 per ounce by 1502 GMT. Prices had touched $1,849.90 earlier in the session, its lowest level since Feb. 16.

U.S. gold futures were up 0.7% at $1,876.90 per ounce.

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“Gold in recent weeks has dropped significantly as the yield curve has moved up. Today a slight retreat in yields is supporting gold prices… Gold is going to be fairly range-bound,” said head of commodity strategies at TD Securities, Bart Melek.

“Gold has pretty much priced in a fairly aggressive set of policy moves for the Fed meeting. But, if we continue to see poor economic data, then market is going to question Fed’s commitment.”

U.S. benchmark 10-year Treasury yields backed off the 3% level on Tuesday. Meanwhile, the dollar index was down 0.3%, making bullion less expensive to other currency holders.

Market participants expect the Fed to raise rates by 50 basis points at the end of a two-day meeting on Wednesday in order to rein in soaring inflation, while comments by Chairman Jerome Powell will be scanned for further signals on rate hikes.

While gold is perceived as an inflation hedge, higher U.S. interest rates lift the opportunity cost of holding zero-yield bullion.

“The sharply higher dollar against both the Indian rupee and Chinese renminbi, the world’s biggest buyers of physical gold may trigger a challenging period for gold, until buyers adapt to higher levels,” Saxo Bank analyst Ole Hansen said in a note.

Spot silver edged up 0.5% at $22.75 per ounce.

Platinum firmed 2.8% to $961.77, and palladium rose 2.1% to $2,263.32.

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Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Krishna Chandra Eluri

Our Standards: The Thomson Reuters Trust Principles.