Gold futures inched lower on Wednesday as elevated bond yields hovered near their steepest since 2011, dulling demand for the precious metal.
December gold GCZ8, +0.08% was down $1, or less than 0.1%, at $1,190.50 an ounce, nearing a revisit of the one-week settlement lows of $1,188.60 hit Monday, before Tuesday’s mild rebound. December silver SIZ8, -0.56% fell 12.5 cents, or 0.9%, to $14.275 an ounce.
The ICE U.S. dollar index DXY, -0.28% was down 0.2% at 95.458, though it remains nearly 4% higher this year so far, contributing to a roughly 9% drop for gold over the same stretch. The yield on the U.S. 10-year Treasury note TMUBMUSD10Y, +0.47% rose 1.7 basis points to 3.225%.
“Gold is holding steady in a narrow range as the ‘big’ dollar pulls back from its seven-week high – support remains strong for the dollar on the back of a strong U.S. economy and expectations of steady interest-rate hikes by the Fed,” said Dean Popplewell, vice president of market analysis at Oanda.
The Federal Reserve has already increased rates three times in 2018 and is expected to lift benchmark rates a fourth time in December, as well as continue its gradual tightening trend in 2019, according to the Fed’s own forecasts.
Because precious metals — often used as a haven by investors — don’t offer a yield, the commodity is vulnerable to a slump in a rising-rate environment. That climate also tends to lift the dollar, dimming the appeal of U.S.-priced gold to investors using other currencies. But stock markets are also vulnerable to rising bond yields and any sign that equity markets are in fast retreat could again resume interest in gold, analysts say.
Should the S&P 500 SPX, -1.53% end lower on Wednesday, marking its fifth straight loss, that would represent its longest streak of losses since November 2016.
Gold remained under pressure, despite “some macroeconomic risks associated with the Italian budget crisis and the continued uncertainty surrounding Brexit,” said Peter Hug, global trading director at Kitco Metals.
“Higher rates will become more problematic for the U.S. as debt-servicing levels will continue to rise and the expectation for slower growth and a more benign Fed is likely in play by early 2019,” he said. “Holding insurance positions in gold remains appropriate, but traders need to remain sensitive to technical levels.”
Gold is likely to find minor support at the $1,185 level, with more significant support near $1,180,” said Hug.
Among economic data released Wednesday, the wholesale cost of U.S. goods and services snapped back in September, but the level of inflationary pressure appears to have eased.
