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Metals Stocks: Gold edges back after two day advance

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Gold futures on Thursday looked at risk of ending a two-day trend higher, as investors took a step back from buying that has been supported by concerns over a rise in inflation.

However, a persistent rise in Treasury yields, with the 10-year Treasury note
TMUBMUSD10Y,
1.671%

around its highest rate since May and a slight bounce in the U.S. dollar Thursday, are producing a drag on bullion prices.

December gold
GCZ21,
-0.21%

GC00,
-0.21%

was trading $5.70, or 0.3%, lower at $1,779.30 an ounce, after rising 0.8% on Wednesday.

Meanwhile, silver futures
SI00,
-1.10%

were down 31 cents, or 1.3%, at $24.14 an ounce, eroding a 2.4% gain in the previous session.

Gold, and to a lesser extent silver, is seen as a hedge against rising inflation around the world, a factor that has allowed bullion to gain some traction higher despite growing concerns about pricing pressures.

Gold, and assets considered by some to be digital gold, such as bitcoin
BTCUSD,
-1.77%
,
the world’s most prominent cryptocurrency, have also been rallying.

“Under these conditions, hedges against long-term inflation in cryptocurrencies and precious metals are regaining their shine. In addition, the latter have sagged substantially in more than a year of corrective trend,” wrote Alex Kuptsikevich, senior financial analyst at FxPro, in a research note.

Despite Thursday’s pause, Kuptsikevich sees further upside for precious metals.

“In terms of tech analysis, investors should pay attention to the fact that the bulls have managed to push metals and mining companies above their 50-day moving averages. This is the first sign of a break in the downtrend,” the analyst wrote.

Members of the Federal Reserve have stated that they believe inflation pressures will be short-lived but some investors are worried that policy makers could be underestimating the severity and duration of inflation in the aftermath of COVID-19.

“Amongst the fundamental factors, a divergence between inflation expectations and the actions of the key central banks could provide support to the commodity markets,” the FxPro analyst wrote. “Signs that central bankers are not keeping pace will support a recovery rally in gold and help mining companies to increase their revenues and profits.”

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