LONDON- Concern among investors that the US Federal Reserve will fail to control inflation is helping to lift gold prices despite a sharp rise in US bond yields that would usually drive the metal lower, analysts said.
Real, or inflation-adjusted, returns on US debt have for years been the strongest influence on gold, with higher rates assumed to make non-yielding gold less attractive.
But real yields on US 10-year bonds have increased this year from around -1 percent to -0.5 percent, and gold has risen too – from $1,800 an ounce to around $1,850.
“The inflation narrative is seeping into the gold price at last,” said independent analyst Ross Norman. “There’s a sense the Federal Reserve is behind in terms of doing something about it.”
US consumer price inflation surged to a 40-year high of 7.5 percent in 2021 and the Fed still has not raised interest rates. Investors now expect as many as seven US rate rises this year, but some fear these may come too late.
This, along with the threat of a Russia-Ukraine conflict, has pushed stock markets lower this year.
Interest rate rises are typically seen as bad for gold prices because they tend to lift bond yields.
“(But) aggressive rate hikes may end up being positive for gold,” said Saxo Bank analyst Ole Hansen. “They will further raise the risk of a policy mistake from the Federal Reserve as it increases recessionary risks.”
