Gold rises as inflationary pressures mount, yields fall

(Reuters) – Gold prices rose on Tuesday after mounting inflation concerns boosted safe-haven bids for the precious metal and as a decline in U.S. Treasury yields added support.

Spot gold rose 0.6% to $1,851.63 per ounce by 10:47 a.m. EDT (1447 GMT), after hitting a one-week low of $1,836.10 earlier in the session.

U.S. gold futures rose 0.6% to $1,854.00.

“Gold is being supported by rising worries about inflation, which is historically a bullish element for the metals markets,” said Jim Wyckoff, senior analyst at Kitco Metals.

World shares and bond yields dipped from recent highs as a surprise 50-basis-point rate increase in Australia raised concern over policy tightening ahead of a European Central Bank meeting this week. [MKTS/GLOB][US/]

Although gold is considered a hedge against higher inflation, interest rate hikes remain a potential headwind since that translates into a higher opportunity cost of holding non-yielding bullion.

“Gold traders tend to read central bank meetings and monetary policy moves as a double-edged sword,” Wyckoff added.

Boosting gold’s appeal on the day, U.S. Treasury yields fell from three-and-a-half week highs as souring risk appetite increased demand for the safe haven debt.

Investors are now keeping a close eye on inflation data due Friday for clues on the Federal Reserve’s interest rate hike trajectory. A half-point increase in rates is expected at the Federal Open Market Committee meeting on June 14-15.

“The gap between gold and real rates may be attributed to both an undue rise in real rates given quantitative tightening, and to the still-massive amount of complacent length being held in gold, keeping the yellow metal’s prices elevated,” TD Securities said in a note.

Elsewhere, platinum fell 0.7% to $1,010.78 per ounce and palladium fell 1.2% to $1,979.20. Silver rose 0.5% to $22.17.