Gold gains as inflation worries outweigh higher yields

Gold prices hit a more than one-week peak on Monday, as inflationary pressures due to surging oil prices helped cushion the impact of a U.S. Treasury yield rally after an upbeat jobs report, while a drop in equities also boosted bullion's appeal.

Spot gold XAU= rose 0.2% to $1,810.85 per ounce by 0724 GMT, after hitting its highest since Jan. 27 at $1,814.91 earlier in the session. U.S. gold futures GCv1 rose 0.2% to $1,811.70.

"The largest component of inflation currently, beyond the supply chain issues, is oil prices. And this is a problem no matter how high you move interest rates," said Stephen Innes, managing partner at SPI Asset Management.

 

"Gold is getting a little bit defensive, realizing that we could be in this state for hyperinflation."

Oil prices rose on Monday, with Brent crude LCOc1 touching its highest since October 2014. O/R

Limiting gold's gains, the dollar firmed, while yields on benchmark 10-year U.S. Treasuries stayed close to their highest levels since December 2019 hit on Friday.

U.S. inflation data for January is due on Thursday and strong data could further fuel Federal Reserve's plan to raise interest rates after the U.S. employment report showed nonfarm payrolls jumped by 467,000 jobs last month.

After the U.S. jobs data, the market is pricing in more than five rate hikes at the moment and this week's inflation data will provide further cues on this, said Harshal Barot, a senior research consultant for South Asia at Metals Focus.

Bullion is considered a hedge against inflation and geopolitical risks, yet rate hikes would raise the opportunity cost of holding non-yielding bullion.

Lingering tensions between the West and Russia over Ukraine also supported gold.

Elsewhere, silver rose 1.2% to $22.74 per ounce, platinum XPT= was steady at $1,023.52, and palladium XPD= rose 0.7% to $2,301.19.

(Reporting by Seher Dareen in Bengaluru; Editing by Subhranshu Sahu)