Gold prices hit a near-two-week peak on Wednesday, supported by a dip in U.S. Treasury yields and dovish remarks from Federal Reserve officials. The Fed’s latest policy minutes are due at 1800 GMT, and traders are also awaiting U.S. Consumer Price Index data on Thursday for more clues on the interest rate path.
Spot gold was up 0.7% at $1,872.10 per ounce, its highest level since Sept. 29. U.S. gold futures rose 0.6% to $1,886.10.
Atlanta Fed President Raphael Bostic said on Tuesday that he saw no more U.S. rate hikes in 2023, while Minneapolis Fed President Neel Kashkari said “possible” higher bond yields meant the Fed could do less.
Benchmark 10-year U.S. Treasury yields fell for the second straight session to a near two-week low, moving further away from their 2007 highs scaled last week.
Traders are now pricing in around a 71% chance that the Fed will leave interest rates unchanged in the current 5.25%-5.50% range this year, according to CME FedWatch tool.
“Dovish comments from Fed officials and turmoil in the Middle East are supporting the gold market,” said Jim Wyckoff, senior analyst at Kitco Metals.
Gold is highly sensitive to rising U.S. interest rates as these increase the opportunity cost of holding bullion.
Investors also kept a tab on the developments in the conflict between Israel and the Palestinian Islamist group Hamas. On Monday, prices climbed 1.6% as these geopolitical tensions lifted safe-haven demand.
In other precious metals, spot silver rose 1.3% to $22.09 per ounce. Platinum fell 0.4% to $876.55, and palladium dropped 1.1% to $1,156.94.
The gold market is currently in a tug-of-war between two opposing forces: dovish rhetoric from Fed officials and rising geopolitical tensions. On the one hand, dovish comments from Fed officials suggest that the central bank may be slowing down its pace of interest rate hikes, which is positive for gold. On the other hand, rising geopolitical tensions in the Middle East are boosting safe-haven demand for gold.
It is important to note that the Fed’s latest policy minutes and the U.S. CPI data on Thursday will be key drivers of the gold market in the coming days. If the Fed’s minutes suggest that the central bank is more dovish than expected, or if the U.S. CPI data shows that inflation is cooling, gold prices could rally further. However, if the Fed’s minutes are hawkish or the U.S. CPI data shows that inflation remains high, gold prices could come under pressure.
Overall, the gold market is likely to remain volatile in the near term as investors weigh the competing forces of dovish Fed rhetoric and rising geopolitical tensions. However, if the Fed signals a slowdown in interest rate hikes and inflation shows signs of cooling, gold prices could be poised for a breakout to the upside.