Gold futures on Tuesday posted their lowest settlement in seven weeks, weighed down by steadily rising U.S. Treasury yields and a strengthening dollar.
fell $14.50, or 0.8%, to settle at $1,737.50 an ounce, with the most-active contract at the lowest settlement since Aug. 10, FactSet data show. Bullion edged up less than 0.1% on Monday, even as Treasury yields were climbing.
However, on Tuesday the commodity succumbed to a rise in the benchmark 10-year Treasury note yield
to above 1.5%, amid expectations for tighter monetary policy, and a 0.4% rise in the U.S. dollar, as gauged by the ICE U.S. Dollar Index
a measure of the dollar against a half-dozen currencies.
“Gold held up surprisingly well but is unlikely to come out unscathed from an environment of rising real rates and a yield-powered dollar,” wrote Marios Hadjikyriacos, senior investment analyst, in a research note.
Higher yields in government debt compete against precious metals for investors, which don’t offer a coupon, among investors seeking an investment perceived as a haven.
Gold prices did manage to pare some losses following data Tuesday showing a fall in the index of U.S. consumer confidence to 109.3 this month, the lowest reading since February, from a revised 115.2 in August.
In light of yield and dollar strength, gold is still “trading well off the lows established earlier in the year,” likely due, in part, to “safe-haven flows associated with the looming debt ceiling crisis,” wrote Peter Grant in Zaner’s latest Grant on Gold newsletter.
Washington policy makers have struggled to raise the federal borrowing limit, or debt ceiling, before the government runs out of money to pay its bills sometime over the next month or so. A failure to raise the debt limit could rattle markets and presumable push gold higher.
On Monday, Senate Republicans blocked a Democratic bill that would fund the government and raise the borrowing limit. The government’s current funding expires on Oct. 1. Democrats may be forced to use a budget reconciliation procedure in the Senate to pass a budget including a rise in the federal debt ceiling, but that procedure that may take two weeks.
U.S. Treasury Secretary Janet Yellen clashed with Senate Republicans on Tuesday and warned the nation faced a “calamity” unless Congress raises or suspends the debt ceiling.
“The longer the debt ceiling brinksmanship plays out, the more roiled markets are likely to become,” Grant said. “In such a situation, it becomes increasingly unlikely that the Fed would begin tapering. The combination of greater uncertainty and a more dovish Fed would trigger buying interest in gold.”
Gold found little support from weakness in the U.S. stock market Tuesday. “The safe-haven metals bulls are once again frustrated that risk-off attitudes in the marketplace…are not providing any price support to their markets,” said Jim Wyckoff, senior analyst at Kitco.com, in a daily note.
Meanwhile, silver for December delivery
declined by 23 cents, or 1%, to end at $22.467 an ounce, following a 1.2% rise for gold’s sister metal.
Precious metals investors also weighed comments from Federal Reserve Chairman Jerome Powell, who spoke in front of the Senate Banking Committee. On Tuesday, he said some of the supply-side bottlenecks behind the surge in inflation have “gotten worse.”
Also on Comex Tuesday, December copper
fell by 1% to nearly $4.247 a pound.
The platinum group metals are “among the commodities most exposed to the auto industry, which has faced headwinds initially over COVID-19, but more recently also over production cuts on the back of chip shortages,” analysts at BofA Global Research wrote in a note dated Tuesday.