A slightly weaker dollar and a decline in bond yields underpinned gold on Friday, but price gains were limited by some fresh uncertainties surrounding US inflation trends.
US Treasuries resisted further losses on Thursday and edged higher on Friday with the 10-year yield just below 2.52% at the US open.
The dollar lost ground in early Europe and the trade-weighted index tested 100.00 support. There was a limited recovery from this level, but USD/JPY still moved lower to test the 113.00 area which helped underpin gold prices.
Holdings in the SPDR Gold Trust declined slightly on Thursday after three daily gains which suggested an underlying lack of conviction over moves and some interest in fading rallies.
US industrial production data had little impact with weakness in utilities output offsetting gains in manufacturing.
The University of Michigan consumer confidence index rose to 97.6 for March’s preliminary reading from 96.3 as the confidence in current conditions strengthened to the highest level since 2000.
There was, however, a decline in 1-year inflation expectations to 2.4% from 2.7% and 5-year inflation expectations declined to 2.2% from 2.5%. The weak readings for inflation expectations increased speculation that the Federal Reserve would be deterred from raising interest rates aggressively.
In response, the US currency weakened after the release with USD/JPY dipping below 113.00 and the dollar index edged back to the 10.00 area.
Gold support from a weaker dollar and lower bond yields was offset by reduced concerns over higher inflation as prices held around $1,230.
Overall, gold was still heading for the first weekly gain since late February following strong gains after the Fed rate decision.
The G20 meetings will be monitored closely on Friday and over the weekend given the potential impact on both the dollar and risk appetite.
The latest COT positioning data, released late on Friday, will be a significant focus to assess investor gold positioning just ahead of the Federal Reserve interest rate decision. A substantial decline in net long positions could increase the potential for longer-term support on a re-building of positions.