Gold continued to gain strength hitting a five-month high of $1916.4 in the key London market in the first week of June. A soft US currency, lingering worries over inflation and a slow recovery of US labour market offered support to prices. The threat of a second and third wave of the pandemic in some emerging markets also boosted the metal's safe-haven status.
A three-month low benchmark of 10-year US treasury yields too assisted gold. The declining rates reduced the opportunity cost of holding non-interest yielding assets like gold.
The US Federal Reserve's dovish stance on fiscal policy and concerns over inflation continued to hit the US currency. A weak dollar has provided most of the support to gold as it is considered a hedge against inflation and currency devaluation.
The Dollar index, which measured against a basket of six major currencies had a strong start this year. It rallied about 4 percent in the first quarter but reversed most of such gains by the end of May. Investors and traders who sought safety in the US dollar earlier now turned their focus on returns that weighed down the sentiment of the US greenback.