Gold rebounds despite higher bond yields

Gold prices bounced back on Monday from a more than seven-month low hit in the previous session, shrugging off a jump in bond yields as investors opted for the precious metal as a hedge against rising inflation.

Spot gold rose 1% to $1,800.26 an ounce by 1321 GMT, having fallen to $1,759.29 on Friday for its lowest since July 2. US gold futures gained 1.1% to $1,797.80.

"The market is playing the inflation outlook story and gold is rising as a hedge against it," said Quantitative Commodity Research analyst Peter Fertig, adding that gold's future is now dependent on the speed at which inflation rises.

"However, higher bond yields are negative for gold, but they are also lending support to the dollar, offsetting some gains in the precious metal."

The dollar gained in early European trading as bond yields were boosted by expectations of faster economic growth on the back of expected fiscal aid.

A $1.9 trillion US stimulus package is widely expected to pass by the end of the week, raising hopes of speedy economic recovery but at the cost of rising inflation.

Investors are also eyeing the testimony of US Federal Reserve Chairman Jerome Powell on the Semiannual Monetary Report to Congress on Tuesday.

The Fed and other leading central banks have pinned their hopes on ultra low interest rates to get the economy out of the economic fallout from the COVID-19 pandemic.

Higher yields and lower interest rates increase the opportunity cost of holding non-yielding bullion.

"The bearish trend (in gold) of the last few days is losing strength, but a proper inversion would require a solid recovery of $1,800," ActivTrades chief analyst Carlo Alberto De Casa wrote in a note.

In other precious metals, silver gained 1.3% to $27.57 an ounce while platinum eased by 0.2% to $1,271.40.

Palladium rose 0.3% to $2,386.10, having earlier hit a more than one-month high at $2,431.50.