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Jan 4, 2021

Gold rises to 8-week high on dollar outlook, real yields

Brendan Caldwell discusses gold


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Gold climbed to a eight-week high, topping US$1,900 an ounce, as lower U.S. real yields and a weaker dollar helped the metal build on the biggest annual advance in a decade. Silver jumped while platinum fell from the highest since 2016.

Real yields -- the difference between nominal benchmark bond yields and the rate of inflation -- fell close to last year’s nadir. The decline is being driven by a rise in inflation expectations, with investors betting that vaccine distribution, further central bank support and continuing government aid will see demand rebound in 2021. On Monday, the 10-year break-even rate -- a measure that draws on pricing for inflation-linked Treasuries -- rose as high as 2.01 per cent, the highest in more than two years.

“Gold slicing through the key US$1,900 level with no resistance really lifts silver and platinum,” said Tai Wong, head of metal derivatives trading at BMO Capital Markets.

Spot gold climbed 1.9 per cent to US$1,935.16 at 12:21 p.m. in New York after reaching,944.52, the highest since Nov. 9. In 2020, the metal rose 25 per cent.

Spot platinum fell more than 1 per cent after surging as much as 5.6 per cent to US$1,131.62 an ounce, the highest since Aug. 19, 2016. Silver jumped as much as 4.4 per cent to the costliest since Sept. 15. The Bloomberg Dollar Spot Index was little changed after falling as much as 0.5 per cent.

“The reflation element” is supporting gold, said Giovanni Staunovo, an analyst at UBS Group AG. Investors are “looking for assets which benefit from higher inflation,” he said.

Bitcoin declined the most since March as the crypto rally took a breather. Proponents of the world’s largest cryptocurrency argue that it’s muscling in on gold as a hedge against dollar weakness and inflation risk, citing evidence of expanding interest among institutional investors.