Gold slips as yields edge up, Fed rate hikes loom

FILE PHOTO: Gold products are pictured on display at Korea Gold Exchange in Seoul, South Korea, August 6, 2020. REUTERS/Kim Hong-Ji

(Reuters) - Gold prices retreated on Thursday, as U.S. Treasury yields drifted higher with the Federal Reserve likely to stay on course to raise interest rates in March.

Spot gold fell 0.5% to $1,815.42 per ounce by 10:52 ET (1552 GMT). U.S. gold futures fell 0.6% to $1,816.40.

The Dow rose after a slower rise in U.S. producer prices in December fuelled hopes that inflation has potentially reached its peak.

Gold’s retreat also came despite a subdued dollar, which makes bullion cheaper for overseas buyers, and data showing initial claims for unemployment benefits in the U.S. increased to 230,000 compared with expectations of 200,000 applications for the week ended Jan. 8.

Ed Moya, a senior market analyst at brokerage OANDA, said the overall gold market reaction to the data was rather muted since it did not change the narrative of what the Fed is likely to do in March. Higher interest rates tend to dim appeal of gold, which pays no interest.

But pressuring gold, equities saw a little more of a positive move with the PPI data mostly below expectations and a bump in jobless claims supporting the idea that it could possibly make the Fed pump the brakes on its “hawkish rhetoric,” Moya added.

Also weighing on gold, U.S. Treasury yields edged up – increasing the opportunity cost of holding non-yielding gold – as investors prepared for an interest rate hike in March and at least two more by the end of 2022.

“Gold’s performance is in a way slightly disappointing, bearing in mind the pretty seismic collapse in the U.S. dollar,” said Ross Norman, an independent analyst.

Spot silver fell 0.5% to $23 an ounce, platinum dropped 1.1% to $966.20, and palladium was down 0.8% to $1,895.27.

Reporting by Seher Dareen and Swati Verma in Bengaluru. Editing by Janen Merriman