Metals Stocks: Gold extends recovery as the dollar retreats

Gold futures attempted to notch back-to-back gains as the dollar and stocks weakened Tuesday, with the metal taking back a sliver of the more than 1.6% erased last week in its worst performance in two months.

April gold GCJ8, +0.23% rose $1, or less than 0.1%, to $1,327.40 an ounce. The gold-backed exchange-traded fund SPDR Gold Shares GLD, +0.44% climbed by 0.2%, while the VanEck Vectors Gold Miners ETF GDX, -0.41%  fell 0.3%.

Demand for gold tagged along with buying of the haven Japanese yen and Swiss franc, said Marios Hadjikyriacos, currencies and commodities analyst at brokerage XM.

“It is important to note that the aforementioned safe havens did not react much to the equity turbulence in recent days, perhaps because investors viewed the selloff as a ‘healthy’ correction in overvalued stocks. However, the longer the uncertainty and the volatility last, the more likely it becomes that investors will seek the safety of these assets,” he said.

The dollar was under pressure, chiefly against the Japanese yen USDJPY, -0.87% dropping 0.9% to 107.635. The ICE U.S. Dollar Index DXY, -0.41% fell 0.6% to 89.64.

The yield on 10-year Treasury notes TMUBMUSD10Y, -0.51% slipped to 2.846%. The yield during Monday’s session climbed to a four-year high of 2.891% before settling at 2.857%.

Read : This chart warns that the 30-year downtrend in interest rates may be over

Precious metals, which are often pegged to dollars, tend to rise when the buck weakens because a falling dollar can make buying those assets cheaper for investors using weaker monetary units.

Rising yields, in theory, should detract from appetite for gold because precious metals don’t bear a yield. However, rising inflation could provide a lift for gold over the short term because it is often viewed as a hedge against rising prices.

For now, “gold is acting as a hedge again,” said Mark O’Byrne, research director at GoldCore in Dublin, with year-to-date gold futures up around 1.3% year to date, as global stock indexes trade sharply lower.

As for stocks, the Dow DJIA, +0.38%  slid 0.6%, while S&P 500 SPX, +0.41%  dropped 0.5%. Stocks gained Monday as investors went hunting for bargains after last week saw the biggest weekly losses for all three indexes since 2016. SeeMarket Snapshot.

Read: Here’s the nagging question at the heart of the stock-market selloff

The next big clue for market direction could be found in Wednesday’s January U.S. consumer price inflation. There are concerns that if CPI comes in higher than expected, it could spark worries about higher prices and their effect on the Federal Reserve’s interest-rate hiking plans. Economists polled by MarketWatch are expecting at 0.4% rise for headline inflation, and a 0.2% gain for core inflation, which strips out food and energy costs.

Investors have also been considering a $4.4 trillion Federal budget that U.S. President Donald Trump has proposed, which would see the deficit nearly double in 2017 and rise some $7 trillion over the next decade. Of course, few expect the budget in its current form will be enacted by Congress, especially given it pushes for deep cuts in social programs.

On Tuesday, new Federal Reserve Chairman Jerome Powell said he would pursue interest rate policy “without concern for short-term political pressures.” Analysts have speculated about the pressure President Donald Trump may put on the Fed, particularly if the economy softens.

In other metals trading, March silver SIH8, -0.33%  shed 0.5% to $16.495 an ounce, while the silver-focused iShares Silver Trust SLV, +0.29%  fell 0.3%. March copper HGH8, +2.35%  rose 2.2% to $3.154 a pound, April platinum PLJ8, +0.28%  added 0.2% to $974.80 an ounce and March palladium PAH8, +0.53%  rose 0.7% to $983.10 an ounce.

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