GOLD prices edged higher in early US trading on Thursday, while silver suffered a sharp decline as surging crude oil prices renewed concerns about inflation and the possibility of tighter monetary policy.
Spot gold traded around $4,128.20 an ounce, up 0.45 percent, while spot silver fell 1.40 percent to about $58.83 an ounce.
The mixed performance came as investors weighed signs of a weakening US labour market against renewed inflationary pressure from the energy market.
US initial jobless claims fell by 2,000 to 197,000 in the week ended October 3, according to the latest data. However, continuing claims increased to 1.716 million in the week ended September 26.
The labour market has also shown signs of slowing, with the US economy adding only 29,000 jobs in September.
Despite the weaker employment picture, minutes from the Federal Reserve’s latest meeting showed that most policymakers still expected another interest rate increase before the end of the year.
That prospect, combined with higher Treasury yields, has limited the upside for precious metals.
The benchmark 10-year US Treasury yield was hovering around 5.3 percent, while the 30-year yield remained close to a 24-year high. Investors were also awaiting a $22 billion auction of 30-year Treasury bonds, which could provide a fresh indication of demand for long-term US government debt.
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Oil surge complicates gold outlook
The latest jump in oil prices has become an important source of uncertainty for precious metals investors.
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Brent crude climbed above $104 a barrel, while West Texas Intermediate crude traded above $92 as escalating tensions around the Strait of Hormuz raised concerns about global energy supplies.
A tanker was reportedly hit north of Qatar, while attacks on vessels around the Gulf and the Strait of Hormuz reached their highest weekly pace since the Iran war began.
Supply concerns were further compounded by hurricane-related disruptions in the US Gulf of Mexico, where about a quarter of oil production was reportedly shut in.
Ordinarily, heightened geopolitical tensions and concerns about conflict would strengthen demand for gold as a safe-haven asset.
However, the latest oil shock is also pushing inflation expectations and bond yields higher. That creates a challenge for gold because higher yields increase the opportunity cost of holding an asset that does not pay interest.
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Markets turn defensive
The broader financial markets also reflected the rise in borrowing costs.
Dow Jones futures fell 462 points, or 0.9 percent, before the US market opened. S&P 500 futures declined 0.5 percent, while Nasdaq 100 futures dropped 0.73 percent.
Technology and semiconductor stocks came under pressure as Treasury yields climbed.
The weakness followed a retreat from record levels in the S&P 500 and Nasdaq on Wednesday and came ahead of the long-term Treasury auction.
The US dollar also strengthened, adding another potential headwind for dollar-denominated commodities.
WTI crude was around $92.28 a barrel, while Brent traded near $104.75. The 10-year Treasury yield remained around 5.3 percent.
Investors await inflation data
Markets are now looking towards a series of economic indicators that could determine the next direction for precious metals.
Friday’s preliminary US consumer sentiment data will provide clues about household inflation expectations, while next week’s consumer price index report is expected to offer a more direct reading of inflationary pressure.
Softer employment or consumer sentiment data could support gold by reinforcing expectations of an economic slowdown.
However, persistent inflation, stronger oil prices or weak demand at the long-term Treasury auction could push yields higher and limit gains in bullion.
For gold, the immediate technical focus remains around the $4,151-$4,199 resistance zone. A sustained break above that area could open the way towards $4,226 and $4,230.
On the downside, a move below $4,118 could expose the metal to support around $4,103 and $4,066.
The contrasting performance of gold and silver underscores that geopolitical tensions are supporting safe-haven demand, while higher oil prices, inflation expectations, Treasury yields and a stronger dollar are making the outlook more difficult for investors.
