Gold price hiccup not enough to derail bullish momentum

Gold prices eased this week and US Treasury yields climbed to their highest levels in almost three years, but experts still expect further gains for the yellow metal.

Gold prices eased this week and US Treasury yields climbed to their highest levels in almost three years, but experts still expect further gains for the yellow metal.

The precious metal dropped below US$1960 this week as peace talks in Europe curtailed demand for safe-haven assets and looming rate rises pushed 10-year US Treasury yields to 2.145%.

It is the highest yields on those securities since July 2019, and the increase comes as the board of the US Federal Reserve meets to discuss the cash rate – with analysts expecting a 0.25% increase to be announced on Wednesday (US time).

This weighed on gold-exposed equities, too – the ASX All Ordinaries Gold index dropped back 3.22% during trading on Tuesday and suffered another sell-off in early trade on Wednesday.

Even so, rising inflation and a growing ‘risk-off’ sentiment in markets as the crisis in Europe develops both make convincing cases for further growth in gold’s longer-term outlook, according to Bloomberg Intelligence senior commodity strategist Mike McGlone.

Mr McGlone expected most metals – many of which rallied in the wake of Russia’s invasion of Ukraine – could see prices revert lower after elevated high prices led to a period of demand destruction.

Nickel, aluminium, palladium and copper are all likely to see this play out as the year progresses, Mr McGlone said. 

“The one metal I expect to be higher is probably gold, because it looks like we’re headed towards a recession,” he said.

With Russia looking increasingly likely to default on its foreign debts and the International Monetary Fund warning contagion could lead to recession, Mr McGlone said gold prices could hit US$2500 per ounce by the year’s end and “refresh an enduring bull market” for the metal.

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