Gold builds on Middle East conflict-fuelled gains as US dollar, bonds retreat

Gold prices continued to rise on Tuesday, a day after posting sharp gains on increased market uncertainty due to conflict in the Middle East, as dovish remarks from top U.S. Federal Reserve officials weighed on the dollar and bond yields. Spot gold gained 0.1 per cent to $1,862.80 per ounce by 0314 GMT, after earlier hitting its highest since September 29. U.S. gold futures climbed 0.7 per cent to $1,876.90.

Gold rose about 1.6 per cent on Monday, its biggest one-day jump in five months, as military clashes between Israel and Palestinian Islamist group Hamas boosted demand for safe-haven assets and oil. The conflict is threatening more volatility for investors, adding to uncertainty ahead of the corporate earnings season and crucial U.S. inflation data this week. “The events in the Middle East have provided a catalyst for gold to rebound from oversold conditions,” said Kyle Rodda, financial market analyst at Capital.com.

In the longer run, however, U.S. rates will be the bigger driver, he said, adding that yields are broadly very positive “and that’s kryptonite for gold.” Gold is seen as a safe-haven investment during times of economic uncertainty, but as it yields no interest, it tends to lose its attraction when interest rates rise.

Benchmark 10-year Treasury yields retreated sharply from their 2007 highs and the dollar index eased as top Fed officials indicated on Monday that rising yields on long-term bonds could steer the Fed from further increases in its short-term policy rate. The remarks by Fed Vice Chair Philip Jefferson and Dallas Fed President Lorie Logan prompted investors to undercut the likelihood of further Fed rate increases.

Markets now look forward to minutes of the U.S. central bank’s September meeting, due on Wednesday. Spot silver fell 0.2 per cent to $21.85 per ounce, platinum rose 0.3 per cent to $889.11 and palladium climbed 0.5 per cent to $1,144.82.