Gold falls as the dollar and US treasury yields jump

April 25, 2018

London (Apr 25)   Gold fell on Wednesday as the dollar and US treasury yields jumped on robust US data and signs of an easing in the US-China trade conflict.

US treasury yields rose to 3% for the first time in more than four years, reflecting the durability of the US economic expansion after US consumer confidence rebounded in April and new home sales increased more than expected in March.

But higher yields on bonds make gold a less attractive investment because it pays no interest. Meanwhile, there was a decline in political risk after the US said it would likely reach a trade agreement with China and that officials from both sides would sit down for negotiations in a few days.

"Recently, there has been some optimism that the US-China trade war isn’t going to be as big of an issue," said Natixis precious metals analyst Bernard Dahdah. "There is a bit more confidence in the US and that negatively affects gold, naturally, in terms of geopolitics."

Spot gold was down 0.4% at $1,325.06 an ounce, as of 9.45am GMT, erasing the gains made in the previous session when it broke a three-session losing streak. US gold futures dropped 0.5% to $1,326.50 an ounce.

The dollar index, which measures the greenback against a basket of currencies, rose 0.2% to 90.954.

World stocks were down for the fifth straight session on Wednesday.

In other geopolitical news, North Korean leader Kim Jong-un is due to hold a summit with South Korean President Moon Jae-in on Friday, and is expected to meet with Trump in late May or early June.

"As traders put geopolitical and trade risk in the rear-view mirror for the time being, how the dollar flourishes and wilts will be the primary driver of near-term gold sentiment," said Stephen Innes, Asia-Pacific trading head, Oanda.

Gold is often seen as an alternative investment during times of political and financial uncertainty.

"I think the downward trend [in gold prices] will continue for the next few days" ahead of a meeting between leaders of North Korea and the South, said Ji Ming, chief analyst, Shandong Gold Group.

In other precious metals, spot silver dropped 0.7% to $16.58 an ounce, and platinum eased 0.3% to $923.30 an ounce. Palladium fell for a third straight session, down 0.9% at $965.70 an ounce.


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