Gold futures moved lower Thursday, pulling back their highest intraday level in more than two weeks, with prices pressured by the rise in U.S. Treasury yields and strength in the dollar.
Prices for the precious metal metal had rallied shortly after the Federal Reserve on Wednesday said it would keep its benchmark interest rate unchanged near zero, likely through 2023.
The central bank also boosted its outlook for economic growth, while Fed Chairman Jerome Powell reiterated that policy makers want to see inflation push above its 2% target, accompanied by significant improvement in the labor market, before it will begin raising interest rates or pulling back on its program of asset purchases.
On Thursday, however, gold declined amid a renewed selloff in government bonds, which pushed yields sharply higher, with the 10-year Treasury yield
up more than 9 basis points to nearly 1.73%. Rising yields had been a negative for gold, as they raise the opportunity cost of holding non-yielding assets, but analysts said that dynamic could shift.
Treasury yields have continued higher even after the Fed continued to project near-zero interest rates through at least 2023 in a dovish move Wednesday, which initially sent the U.S. dollar tumbling and stocks rising, said Fawad Razaqzada, market analyst at ThinkMarkets.
“But both trends have since reversed noticeably, causing gold to reverse its gains,” he said.
“Rising yields and a rebounding dollar are a toxic mix for precious metals, and in particular for gold,” he said. “This is because the opportunity cost of holding onto gold, an asset which pays no interest nor any dividend…rises as yield-seeking investors could make better and arguably safer returns by holding government debt.”
Strength in the dollar, with the ICE U.S. Dollar Index
up nearly 0.5% also weighed on dollar-denominated prices for the metal.
Gold for April delivery
declined by $2.10, or 0.1%, to $1,725 an ounce on Comex. Prices had traded as high as $1,754.20, the highest intraday level since March 2, FactSet data show.
however, edged up by 9.2 cents, or 0.4%, at $26.15 an ounce.
“Until such a time that yields stop rising, it is difficult to be positive on the outlook for gold, even if prices have now fallen to near their pre-pandemic levels, making them relatively inexpensive and dare I say, attractive for some long-term gold bugs,” said Razaqzada.
Among other metals traded on Comex Thursday, May copper
fell by 0.1% to $4.12 a pound.
Palladium was on track to tally a weekly gain of more than 14%, with the rally driven by supply concerns after Norilsk Nickel, a key producer of palladium, said this week that its metal production levels will fall short of its 2021 production guidance.