Gold Climbs to Eight-Week High as Treasury Yields Exceed 1%

(Bloomberg) -- Gold reached an eight-week high as benchmark U.S. Treasury yields topped 1% for the first time since March, with investors tracking elections in Georgia that will determine control of the Senate.

The haven held in a narrow range as the 10-year yield rose as much as six basis points. Democrat Raphael Warnock ousted Republican Kelly Loeffler, according to the Associated Press, leaving control of the Senate hinging on the other Georgia runoff. The move steepened the yield curve, reflecting expectations for a spending surge. Rising inflation expectations have muted increases in real yields, which remain negative.

Gold has prospered in the new year, aided by a weaker dollar and declining real yields, to build upon the biggest annual advance in a decade. Should Democrats win control of the Senate, it’ll result in a unified government, clearing the way for President-elect Joe Biden to enact his agenda to revive the world’s largest economy from the ravages of the pandemic.

Vast amounts of stimulus and rising asset prices hint at major inflation ahead, “so gold becomes an absolutely important hedge,” said Gnanasekar Thiagarajan, director at Commtrendz Risk Management Services. The rise in Treasury yields is weighing on gold slightly ahead of Wednesday’s release of minutes from the Federal Reserve’s December meeting, he said.

Spot gold added 0.3% to reach $1,955.31 an ounce at 10:37 a.m. in London, the highest since Nov. 9. Silver also advanced, while platinum and palladium were little changed. The Bloomberg Dollar Spot Index lost 0.2% after ending Tuesday at the lowest since 2018.

“We still think the broader macro environment for gold remains very supportive in light of low interest rates, accommodative monetary policy and fiscal stimulus,” Suki Cooper, a precious metals analyst at Standard Chartered Plc, told Bloomberg TV before the initial Georgia result was called. “We’re going to see further dollar weakness into this year and that continues to set a favorable backdrop for gold.”

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