Gold advances as global inflation concerns see dollar retreat

Gold rose as the dollar eased and the outlook for inflation on the back of higher energy costs outweighed an expected European Central Bank rate hike.

Bullion is stabilising after capping five months of declines through August as the US dollar and 10-year Treasury yields climbed, which weighed on the non-interest bearing precious metal. Gold is also finding support as a traditional hedge against price pressures.

Central banks globally are raising rates to fight inflation, with growing expectations for the European Central Bank to hike by 75 basis points in its next policy decision Thursday. Meanwhile, the People’s Bank of China has moved in the opposite direction, most recently cutting its key policy rate by 10 basis points.

On Monday, China said it’s “crucially important” for the country to adopt supportive policies this quarter as it tries to recover from pandemic-related losses. The PBOC also reduced the amount of foreign-exchange deposits banks need to set aside as reserves for the second time this year in a bid to boost the yuan after the currency hit a two-year low.

“A retracement in the dollar this morning allowed gold prices to tap on its weakness for some relief, coming after a heavy sell-off over the past week,” said Jun Rong Yeap, a market strategist at IG Asia Pte., adding that the greenback is expected to resume its upward trend and cap gains in bullion.

European ministers will on Friday discuss special measures to rein in soaring energy costs, from gas-price caps to a suspension of power derivatives trading, as the bloc races to respond to a deepening crisis. Separately, OPEC+ agreed to cut 100,000 barrels a day in October.

Spot gold rose 0.3% to $1 715.93 an ounce as of 6:11 a.m. in London, after slipping 0.1% on Monday. The Bloomberg Dollar Spot Index was little changed after dropping 0.3% earlier, while remaining in sight of a record level. Silver, platinum and palladium advanced.

© 2022 Bloomberg

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