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Gold futures edged lower early Tuesday, largely holding its ground as U.S. Treasury yields continued to rise to levels last seen in 2019 a day after Federal Reserve Chairman Jerome Powell said policy makers could deliver half percentage point interest rate hikes at future meetings in a bid to rein in inflation.
Gold for April delivery
GC00,
GCJ22,
fell $2, or 0.1%, to $1,927.50 an ounce on Comex after eking out a 0.1% rise on Monday. May silver
SIK22,
fell 5.3 cents, or 0.2%, to $25.26 an ounce.
“In the commodity sphere, gold has been remarkably resilient,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note.
Powell, in a Monday address at an economic conference, said that while no decision had been made, the Fed was prepared, if necessary, to raise rates in increments of more than 25 basis points, or a quarter percentage point. Some policy makers have already called for such a move. Indeed, St. Louis Fed President James Bullard dissented in favor of a half-point rise at last week’s policy meeting, when the Fed delivered a 25 basis point increase.
Treasury yields soared, with the yield on the 10-year note
TMUBMUSD10Y,
rising well above 2.30% to its highest level since May 2019. Rising yields can be a negative for gold because they raise the opportunity cost of holding assets that don’t offer a yield. The dollar has also strengthened in reaction to Powell’s remarks. A stronger dollar can also be a headwind because it makes commodities priced in the unit more expensive to users of other currencies.
“Even though soaring yields and a stronger U.S. dollar should be grave news for the yellow metal, bullion has escaped with only minor injuries so far,” Hadjikyriacos said.
Gold seems to be finding support as a result of the Russia-Ukraine war and other worries.
“Safe-haven demand seems to be negating the impact of tighter monetary policy.
Investors are looking for a hedge that will protect their portfolio against geopolitical turmoil, and since holding bonds can be very painful in an environment of rising rates and raging inflation, many are warming up to gold instead,” the analyst said.
