Photo by Jingming Pan on Unsplash

On Monday, gold prices jumped to their highest level in more than a week as the U.S. dollar eased. The greenback recorded its first weekly loss in almost two months. And the weaker dollar made the bullion more appealing to investors using rival currencies. However, the recovery of the U.S. Treasury yields limited the demand for non-interest-bearing gold.

Spot gold is currently trading at $1,854.62 per ounce as of 0801 GMT.

OANDA senior analyst Jeffrey Halley noted that it remains unclear whether the yellow metal has weathered the storm. He wanted to see how gold performs against the dollar’s strength and not its weakness.

The FXStreet Insights Team argued that the deteriorating macro-economic outlook and higher inflation would be supportive of the bullion. Also, the gold’s appeal as a risk-diversifier improved due to the risk of underperformance in the equity markets. Swissquote Bank Ltd. senior analyst Ipek Ozkardeskaya added that gold breached the 200-DMA, which paves the way for a further rise towards the $1,857-$1,880 range.

Despite an improvement in gold’s outlook, the rising interest rates remain a major headwind. Last week, St. Louis Federal Reserve Bank President James Bullard reiterated his call for an aggressive series of rate hikes to control inflation more quickly. He suggested interest rate hikes of 3.5% by the end of the year.  Bullard argued that that is the best way to get inflation and inflation expectations under control. If successful, the central bank could then start with policy easing in 2023 or 2024.

In physical trading, Indian gold dealers offered discounts of up to $2 per ounce despite robust demand because of the wedding season. Local prices increased from 49,572 rupees to 50,700 rupees per 10 grams.

In China, the easing of COVID-19 restrictions boosted hopes for demand improvement. City Index senior analyst market analyst Matt Simpson said the end of lockdowns could boost the demand for the bullion. JP Morgan Research analysts agreed that it could help arrest the declines in gold prices. But they do not expect the demand to be strong enough to boost prices for prolonged periods.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, rose 0.69% to 1,063.43 tons on Friday. It reflects current market sentiment.