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Gold futures extended their decline Tuesday, heading for a roughly two-week low for the precious metal after a sharp rise in U.S. Treasury yields this week and ahead of a Federal Reserve policy meeting which is expected to raise benchmark interest rates.
The Fed is set to meet Tuesday to decide on what is expected to be the first increase in fed fund futures rates since 2018 as policy makers attempt to combat U.S. inflation at a 40-year-high, even though Russia’s invasion of Ukraine could hurt global economic growth.
Russia and Ukraine were also set to continue talks to end their hostilities in Eastern Europe, after a fourth round of negotiations on Monday ending without any clear agreement.
Gold had been drawing safe-haven bids since the start of the conflict between Moscow and Kyiv on Feb. 24 but it has begun to stage a substantial retrenchment as Treasury yields rise ahead of the Fed decision on Wednesday.
April gold
GCJ22,
GC00,
fell $33.30 an ounce, or 1.7%, to trade at $1,927.30 an ounce, extending its decline to the lowest level since early March after falling 1.2% on Monday.
The Fed is widely expected to raise interest rates by 25 basis points on Wednesday, commencing what is expected to be a series of hikes to borrowing costs to quell inflation.
The prospective hikes can spark selling in Treasurys, pushing yields higher and that can raise the opportunity cost for owning nonyielding gold versus government debt, wrote Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a daily note.
Ozkardeskaya said, however, that “successive failures to find a diplomatic solution in the Ukrainian war could overcome the rising US yields and throw a floor under the decline of the price of an ounce near the $1900 mark.”
The 10-year Treasury note
TMUBMUSD10Y,
yields around 2.12%, down slightly from nearly 2.14% for the benchmark note, which was its highest level since the summer of 2019.
