Gold edged up on a plunging USD
- Gold is helped by a slump in USD.
- Concerns of higher inflation may be positive for Gold.
Gold is now trading around $1,333.00 a troy ounce, in the New York session, edging up by 0.06% and well off the earlier daily low of 1,320.78 on a slump in the USD amid easing yields and recovering equities.
Gold prices inched lower on Thursday, on higher USD and US bond yields. A stronger dollar makes gold and other dollar-denominated commodities more expensive for overseas buyers. The recent surge in bond yields reflects investors' bets that higher inflation will give the Federal Reserve a freer hand to raise interest rates more aggressively moving forward, which maybe negative for gold.
FOMC minutes on Wednesday showed that several Fed officials last month believed that the economy was set to grow even faster than when they elevated their growth projections at their December meeting. Some officials also appeared more certain inflation would return to their 2% target over the coming year after years of consistently lagging behind.
The combination of gradually higher inflation and higher rates could pose trouble for gold, which struggles to compete with yield-bearing assets like Treasuries when rates rise but are also used by many investors to hedge against an unexpected rise in inflation. The slump in USD helped gold bounce off its lows for the day.
The FOMC minutes showed some Fed officials were still concerned that inflation will continue to lag behind their target, a trend that could lead them to stay accommodative with monetary policy, which would be positive for Gold apart from the ongoing geopolitical concerns.
Technically for Gold, the 1315 area is now the immediate support and sustaining below that expostes the 1305-1285 price zone. For any meaningful recovery, Gold must stay above the 1335-1340 zone for the 1356-1366 area.