Gold prices head higher as war and inflation remain in focus

“The Western allies continue to roll out sanctions targeting Russia, which has the unfortunate side effect of complicating the global flow of goods and services,” he said. “That could keep inflation and market volatility elevated, both of which are supportive elements for the yellow metal.”

At the same time, “higher inflation is stoking an increasingly aggressive response from central banks,” with the Federal Reserve is set to hike its benchmark rate by 50 basis points in May,” said Westwater. Rising rates “disadvantage gold, a non-interest-bearing asset.”

So “the looming question is whether central banks will be able to get a handle on inflation,” he said.

Gold for June delivery GC00, +0.25% GCM22, +0.25% edged up by $6.90, or 0.4%, to $1,934.40 an ounce on Comex. May silver SI00, +0.17% SIK22, +0.17% added 11.6 cents, or 0.5%, to $24.65 an ounce.

“With real yields powering higher and the dollar slicing through its competitors, it is quite surprising that gold prices have stood their ground,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note.

The yellow metal ended slightly lower, falling 0.3%, on Tuesday as the 10-year Treasury yield jumped to a nearly two-year high after Fed Gov. Lael Brainard signaled the Fed would move to quickly unwind its nearly $9 trillion balance sheet while rapidly raising interest rates.

Investors expected to see details of the Fed’s plans for its balance sheet when minutes of the central bank’s policy meeting are released at 2 p.m. Eastern, after gold’s regular settlement.

Read: Markets are hankering to find out the Fed’s plan to shrink its $9 trillion balance sheet. They should get their wish Wednesday

Yields continued to rise Wednesday, with the 10-year rate TMUBMUSD10Y, 2.601% moving above the 2.60% threshold. The dollar has also gained ground, which can also be a negative for commodities priced in the unit as it makes them more expensive to users of other currencies.

“Bullion escaped with very mild injuries considering the storm in bonds, with buyers defending the $1,915 region like a stronghold. The Fed repricing has not inflicted any serious damage on gold so far, although the real test will come once there’s a ceasefire in Ukraine and haven demand cools off,” Hadjikyriacos said.

Investors continue to monitor developments in Ukraine. The U.S., along with other Group of Seven countries and the European Union, were set Wednesday to announce new sanctions on Russia over its invasion of Ukraine, after evidence of alleged war crimes emerged as Russian forces pulled back from the area around Kyiv.

Other metals traded lower on Comex, with May copper HGK22, -0.97% down 0.6% at $4.767 a pound. July platinum PLN22, -2.17% shed 1% to $963.90 an ounce and June palladium PAM22, -2.47% traded at $2,208 an ounce, down 1.2%.