Gold Holds Five-Day Gain as Oil Drop Eases Inflation Concerns

(Bloomberg) -- Gold held a five-day gain, with inflation concerns eased by a drop in US Treasury yields and lower oil prices as Iran and Oman discussed ways to reopen the Strait of Hormuz.

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Bullion traded around $4,660 an ounce, close to a three-month high struck in the previous session. The metal has gained more than 7% in the last week after the Treasury ramped up buybacks of long-dated government debt.

The recent efforts to control the cost of the US debt pile revived interest in the so-called debasement trade that helped power gold's record-breaking rally last year, when investors bought the precious metal and avoided sovereign debt and currencies to protect themselves from runaway budget deficits.

Yields fell by five to seven basis points across the curve on Tuesday as oil dropped on optimism about de-escalation in the Middle East. Iran and Oman held talks about establishing a "temporary joint maritime corridor" that would allow some shipping in the region to resume.

Lower energy prices are also likely to benefit gold by reducing pressure on the Federal Reserve to hike interest rates. Fed Bank of Boston President Susan Collins said she supported holding rates steady for now, provided progress is seen in bringing inflation back toward the central bank's 2% target. Higher borrowing costs are typically a headwind for non-yielding bullion.

Kevin Warsh's first major speech as chairman of the Federal Reserve may hold clues to the central bank's next move. The much-anticipated address at the Jackson Hole symposium on Friday offers Warsh an opportunity to counter criticism that he hasn't been forthright with his views on the economy.

Traders are also positioning for the US Personal Consumption Expenditure Index due Wednesday, which will give further clues on the temperature of the American economy.

Gold edged up 0.1% to $4,659.52 an ounce at 7:35 a.m. Singapore time. Silver was 0.3% higher at $68.83 an ounce. Platinum was little changed, while palladium rose. The Bloomberg Dollar Spot Index was flat, after dropping 0.1% in the previous session.

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