Gold soared the most since March, helped by a continued decline in Treasury yields, as traders weighed concerns that central banks’ monetary tightening will lead to recession and the possibility that bond rates may have reached a peak.

Bullion extended its first weekly gain in three, as lower bond rates boosted the appeal of the non-interest bearing asset. Silver gained the most since February 2021 as traders bought back their previously short positions with the dollar and bond yields moving lower.

Investors remained jittery about the impact of aggressive interest-rate hikes after a slew of Federal Reserve officials last week re-emphasized their resolve to fight inflation. This is despite weak US manufacturing data signalling that the US central bank may not overtighten monetary policy. 

Traders will now look to US jobs data due on Friday for more clues on the future path of central bank monetary policy. That means bullion could be in for more volatility, with strong numbers potentially spurring further gains in bond yields that would be harmful for gold.

“Gold prices remain in a strengthening downtrend,” said TD Securities commodity strategists led by Bart Melek. “The risk of capitulation remains prevalent for the yellow metal moving into October, with strong data continuing to point to a more aggressive Fed rate path ahead.”   

Investors continue to abandon the metal at pace, with hedge funds trading the Comex hiking their short bets for the seventh week running as of Tuesday. Exchange-traded funds have seen outflows for 16 straight weeks, according to an initial tally by Bloomberg. Bullion has dropped almost 9 per cent this year.

There’s still a plethora of risks for financial markets, including concerns about Credit Suisse Group AG, helping support prices. The cost of insuring the bank’s debt against default rose to a record Monday, though it remains far from distressed levels.

“Gold holds above Friday’s low at US$1,660, supported by geopolitical and financial risks and a cooling of the recent dollar and yield surge,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S.“The price needs to break the critical resistance zone into US$1,678-US$1,690 that is the departure point for this latest bear-market move.”

Spot gold advanced 2.2 per cent to US$1,697.76 an ounce as of 3:25 p.m. in New York after climbing 1 per cent last week. Bullion for December delivery rose 1.8 per cent to settle at US$1,702.00 on the Comex. The Bloomberg Dollar Spot Index slipped 0.4 per cent after retreating from a record high last week. Platinum and palladium also gained.

Silver surged as much as 8.9 per cent on short covering. “I think the Chancellor of the Exchequer forced to reverse on tax cuts has taken UK out of ‘crisis’ mode so GBP higher, USD lower, yields lower, stocks higher and other assets like precious higher as well,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York. Short-covering triggered the metal to break through technical levels, which in turn sparked more short-covering, Wong added.