Gold prices and a related exchange traded fund maintained their momentum Thursday as the U.S. dollar and Treasury yields slipped.
On Thursday the Sprott Physical Gold Trust (PHYS) rose 0.4%. Meanwhile, Comex gold futures were up 0.5% to around $1,770.4 per ounce.
Analysts argued that the recent dip in the USD and yields on long-term Treasuries helped support the rebound in gold bullion from its most recent retreat, MarketWatch reported. Looking ahead, traders are waiting on Federal Reserve Chairman Jerome Powell’s speech Friday during the annual Jackson Hole, Wyoming economic symposium where he could provide hints about the Fed’s interest rate outlook.
TD Securities analysts have warned that traders are wary of a potential “Fed pivot” or a slowdown in the pace of interest rate hikes ahead.
“Facing the most hawkish central bank regime since the 1980s, the entire precious metals complex is now trading in a bear market regime, despite rising risks of recession,” according to TD Securities analysts.
“If the market responds to Powell in a dovish manner that should send inflation expectations even higher, while the dollar and yields should pull back, which would all result in tailwinds on gold,” analysts at Sevens Report Research said in a note. “However, a hawkish and ‘growth-insensitive’ Powell would likely send gold back down towards $1,700, potentially by Friday’s close.”
Nevertheless, some argue that investors are overstating the impact of rising rates on the gold market.
Investors are “exaggerating the potential adverse impact of higher interest rates” on gold prices, George Milling-Stanley, chief gold strategist at State Street Global Advisors, told MarketWatch.
Gold prices even rose during the last two periods of sustained Fed tightening, “countering the conventional wisdom that higher rates hurt gold investment because they raise the opportunity cost of investing” in it, Milling-Stanley added.
Other factors may also support the gold outlook as a risk hedge or safe-haven play.
“Growing geopolitical uncertainty has driven central banks to hold more gold and less of other countries’ currencies or debt,” Steve Land, lead portfolio manager of the Franklin Gold and Precious Metals Fund, told MarketWatch.
“There are usually a lot of offsetting pressures in the gold market, giving it unique price movements relative to other assets,” which makes it a “compelling addition to a diversified portfolio,” Land added.
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