(Bloomberg) -- Gold rose for a second day as investors weigh the trajectory of the Federal Reserve's rates tightening cycle against risks to growth from the war in Ukraine.
Bullion extended gains on Thursday after dropping to a two-week low Wednesday following the Fed's move to raise interest rates by a quarter percentage point. While officials signaled hikes at all six remaining meetings this year to tackle the fastest inflation in four decades, Chair Jerome Powell played down the risk of a recession and declared the economy strong enough to withstand tighter policy.
Higher rates could weigh on non-interest bearing bullion, but demand for the haven asset is being underpinned by concerns over the economic fallout from Russia's invasion of Ukraine and ongoing concerns that the Fed will struggle to restrain price pressures without a slowdown. A section of the Treasury curve -- the gap between five- and 10-year yields -- inverted for the first time since March 2020, potentially indicating oncoming growth pains.
“A glance at previous rate hike cycles shows that gold tended to gain once the cycle begins,” Commerzbank AG analyst Carsten Fritsch said in a note. “The same appears to be happening this time too, though comparisons with past rate hike cycles are difficult in view of the war in Ukraine. After all, this is an additional factor that points to increased demand for gold.”
Investors continue to seek a store of value amid the uncertainty, with initial data compiled by Bloomberg showing an addition of 11 tons to gold-backed exchange-traded funds Wednesday. ETF inflows have been “persistently robust” and since the start of the Ukraine war total 117 tons, Fritsch said.
Spot gold climbed 0.5% to $1,936.88 an ounce as of 3:45 p.m. in New York. Prices rose 0.5% Wednesday after dropping as much as 1.2% to the lowest since Feb. 28. Bullion for April delivery gained 1.8% to settle at $1,943.20 on the Comex. The Bloomberg Dollar Spot Index fell 0.4%. Palladium gained 4.8% while silver advanced and platinum was little-changed.
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