(Bloomberg) — Gold was set to end to the week lower as elevated energy prices drove bond yields higher and fueled expectations the Federal Reserve will need to raise interest rates further to contain inflation.
Bullion swung between gains and losses on Friday. Oil declined after rising by more than 7% over the previous two days, as negotiators were said to be exploring a phased deal that would see Tehran reopen the Strait of Hormuz and Washington lift a port blockade. Treasury yields dropped from multi-decade highs, helping providing some support for gold prices.
Still, the precious metal is 2.4% lower this week, weighed down by expectations for further Fed tightening as elevated energy prices fuel inflation concerns. Higher borrowing costs are typically negative for bullion as it pays no interest.
Separately, US consumer sentiment fell in September to a four-month low amid deepening worries about higher prices. The University of Michigan’s final sentiment index decreased to 48.1 in September from a month earlier, according to the survey released Friday.
Higher yields and stronger oil prices provide a “difficult backdrop for gold” even if the metal’s bullish long-term drivers are unchanged, said Christopher Wong, an analyst at Oversea-Chinese Banking Corp. “There probably needs to be a fresh catalyst before the next meaningful leg higher.”
Gold has traded in relatively narrow range either side of $4,300 an ounce in September as traders repeatedly recalibrate the outlook for Fed policy. Despite near-term headwinds, many investors are still betting it will grind higher as it rediscovers its traditional value as a portfolio hedge.
Spot gold was little-changed to $4,281.05 an ounce at 11:01 a.m. in New York. Silver was up 0.7% at $64.23 an ounce. Platinum was up while palladium fell. The Bloomberg Dollar Spot Index, a gauge of the US currency, was down 0.3% after five days of gains.
–With assistance from William Clowes and Yihui Xie.
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