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Gold prices pull back from 3-month high as inflation fears percolate

Gold prices saw lackluster trade Tuesday, edging lower but mostly holding near the highest levels since February, amid selling of assets considered risky, including global stocks and oil.

“The modest increase in U.S. 10-year yields appears to be taking the edge off the recent rise in gold prices, along with the fact that it is also closing in at resistance” at its 200-day moving average, said Michael Hewson, chief market analyst at CMC Markets UK, in a market update. The 200-day MA was at $1,866.08, according to FactSet data.

Moves in gold came as 10-year Treasury yields BX:TMUBMUSD10Y moved up to 1.62%, while the U.S. dollar, as measured by the ICE U.S. Dollar Index DXY, was around the lowest level in 2 1/2 months.

June gold
GCM21,
-0.18%

 was off $4.70, or 0.2%, at $1,832.90 an ounce, after the precious metal rose 0.3% Monday, adding to a climb to the highest finish since Feb. 10, FactSet data show.

Some analysts are pointing to growing concerns that rising inflation in the U.S. and other countries could prompt the Federal Reserve to remove its easy-money policies sooner than expected in the aftermath of the COVID pandemic.

Data on Tuesday showed that prices at factories in China rose at the fastest pace in 3½ years in April. China’s producer-price index rose 6.8% last month from the period a year ago, the National Bureau of Statistics said.

Gold is viewed as a hedge against inflation but if concerns about pricing pressures causes the Fed to raise interest rates that could undercut appetite for precious metals which don’t offer a coupon and compete against U.S. Treasurys.

On the other hand, “the threat of stagflation continues to emerge as an underlying market theme, and that is supportive of gold for one main reason: lower real interest rates,” analysts at Sevens Report Research, wrote in Tuesday’s newsletter.

“A stagflation environment would mean that only one of the factors of the Fed’s dual mandate, i.e. inflation, would be reached while full employment would not,” they said. “In such a dynamic, the Fed would likely remain accommodative longer than they should, keeping rates artificially low while inflation runs hot, pressuring real interest rates—which always results in an appealing environment for gold.”

Given that, they see gold as a “potential big winner if we see inflation continue to firm, but growth metrics begin to roll over.”

Selling in global stocks, with the Dow Jones Industrial Average
DJIA,
-1.49%

and the S&P 500
SPX,
-0.99%

moving lower on Tuesday, were helping to cap declines in gold, strategists said.

Among other Comex metals, copper looked to notch a record high as the global economic recovery continues, with prices topping the settlement from Friday.

July copper
HGN21,
+1.12%

climbed 0.8% to trade at $4.76 a pound.

July platinum
PLN21,
-1.88%
,
meanwhile, was down 2.5% at $1,233.30 an ounce and June palladium
PAM21,
-1.46%

shed 1.3% t $2,928.50 an ounce.

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