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Gold prices dip after dollar, Treasury yields rise

Gold prices dip

Spot gold was down 0.3% at $1,918.74 per ounce and U.S. gold futures were down 0.2% at $1,923.10

Gold prices dipped on Wednesday after the dollar and Treasury yields jumped to multi-year highs on hawkish comments from U.S. Federal Reserve officials and as cautious traders braced for the U.S. central bank’s minutes from its latest meeting.

Spot gold was down 0.3% at $1,918.74 per ounce, as of 0612 GMT. U.S. gold futures were down 0.2% at $1,923.10.

Stronger U.S. dollar and lack of safe-haven demand are capping its (gold’s) upside potential, U.S. dollar has certainly taken the shine from gold as each rally from the $1,916 support fails to hold on to any gains, said City Index senior market analyst Matt Simpson.

Price action remains choppy overall and hesitant to commit to a particular direction, he said.

The dollar scaled its highest in nearly two years as Fed officials pushed for a quick reduction in the central bank’s balance sheet, with one of them expressing openness to hefty rate increases of half a percentage point.

A stronger dollar makes gold less attractive for other currency holders.

Hawkish comments from key Fed members yesterday likely overshadow today’s FOMC (Federal Open Market Committee) minutes, as they point towards a 50 bp hike at the next FOMC meeting and a faster balance sheet reduction than anticipated, Simpson said.

Minutes from last month’s Fed meeting may add detail to policymakers’ thinking about how quickly they could move to reduce bondholdings and lift interest rates. The Fed’s stance has been sounding ever more hawkish.

U.S. Treasury yields hit multi-year highs, with longer-term yields moving more quickly and partly reversing some of the recent inversions in the U.S. curve.

Gold is highly sensitive to rising U.S. interest rates and higher yields, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

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