Gold futures were higher for a second day Wednesday, even as the precious metal was confronting bearish factors, including rising Treasury yields and a slight rise in the U.S. dollar during the session.
The yellow metal has gotten some traction this week as the dollar has softened, with the ICE U.S. Dollar Index
down 0.1% so far this week, while gold was headed for a weekly advance of 0.6%, FactSet data show.
A weaker dollar can make assets priced in the currency more attractive for buyers using other currencies. Lackluster U.S. housing data on Tuesday was blamed for contributing to weakness in the greenback a day ago.
However, analysts are expecting gold to eventually face stiffening headwinds from the Federal Reserve if the central bank is compelled to lift benchmark interest rates faster than had been previously anticipated to cool a rise in inflation.
“Much has been said about the concerns over high inflation and how, in such a scenario, the tightening of policies by the Federal Reserve is likely to support the dollar and, due to the inverted correlation between the two assets, generate weakness for the precious metal,” write Ricardo Evangelista, senior analyst at ActivTrade, in a Wednesday note.
Worries about a quicker pace of interest rate increases, with expectations growing that the Fed will commence a rollback of its COVID-era asset purchases has pushed the 10-year Treasury note
to its highest rate in about five months.