Gold firms on softer dollar, yields; rate-hike fears limit upside

[October 03, 2022]  By Brijesh Patel

(Reuters) - Gold prices edged higher on Monday, helped by a pullback in the dollar and U.S. Treasury yields, although the gains were capped on fears of aggressive rate hikes by the U.S. Federal Reserve.

Spot gold XAU= was up 0.2% at $1,663.70 per ounce, as of 1043 GMT. U.S. gold futures GCv1 were steady at $1,672.

"The correction in the U.S. dollar at the moment has unquestionably given gold a little bit of a lift. But I suspect that the expectations of further rate rises is limiting those gains," said Ross Norman, an independent analyst.

The dollar =USD held about 2% below a two-decade peak versus major peers, making greenback-priced bullion less expensive for overseas buyers. USD/

Benchmark U.S. 10-year Treasury yields US10YT=RR also crept lower after rising for two days. US/

On Friday, the Fed's No. 2 official added her full endorsement of the U.S. central bank's higher-for-longer game plan for interest rates to curb inflation. Read full story

Last month, the Fed raised its policy rate by 75 basis points, its third straight increase of that size, and signaled more large hikes to come this year.

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding it.

Prices of bullion fell more than 8% in the July-September quarter, marking its worst quarterly performance since end-March 2021.

Looking ahead, investors are awaiting U.S. non-farm payrolls data due on Friday and a host of manufacturing PMI data for insight into the health of the global economy.

"A more lukewarm (payrolls) reading may be preferred by gold bulls for a relief rally, but the absence of any pause in Fed's policies could still suggest that the overall downward trend may remain intact," IG market strategist Yeap Jun Rong said.

Elsewhere, spot silver XAG= climbed 1.7% to $19.33 per ounce, after hitting a more than one-week high earlier in the session.

"At the moment it looks like short-covering in silver, which means that the current rally may not be sustainable," Norman said.

Platinum XPT= rose 0.5% to $863.02 per ounce and palladium XPD= jumped 1.7% to $2,194.50.

(Reporting by Brijesh Patel in Bengaluru; editing by Uttaresh.V and Louise Heavens)

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