Gold price declines anew under threat of rising dollar, bond yields

April 25, 2018

New York (Apr 25)  Gold prices returned to a lower track in Wednesday trading, hit by rising bond yields and a firmer dollar.

Gold futures had clawed higher Tuesday after three consecutive sessions of declines even as Treasury yields, which tend to move inversely to precious metals prices, climbed above 3% for the first time since January 2014. Yields TMUBMUSD10Y, +0.88%   continue to threaten with higher moves Wednesday, reaching 3.021% in recent trading.

June gold GCM8, -0.84% fell $6.90, or 0.5%, to $1,326.20 an ounce. The contract closed at $1,324 as recently as Monday, marking its lowest finish since March 21. The yellow metal is off some 2.5% since hitting a 2 ½-month high of $1,360 on April 11.

The rise in U.S. interest rates has come as traders increasingly start to price in four interest-rate hikes in 2018 from the Federal Reserve, rather than the three signaled by policy makers.

Higher yields can dull the investment appeal of nonyielding bullion. It is also true that accelerating inflation can eventually lure investors into the shelter of fiat gold, meaning bond market moves tend to have mixed implications for the metal. So far, however, rising yields have driven gold lower.

Read: Here’s why the stock market and commodities are no longer in lockstep

The ICE U.S. Dollar Index DXY, +0.43% was up 0.2% at 90.97. Its moves impact the appeal of dollar-priced commodities, including gold, to investors using other currencies. U.S. stock futures, meanwhile, pointed to a lower start as the prospect for higher yields elsewhere made equity investors cautious.

May silver SIK8, -1.22% fell 14 cents, or 0.9%, to $16.56 an ounce. Gold’s sister metal has traded in volatile fashion since tumbling 3.4% on Monday, pulling back at that time from its own 2½-month high hit last week. The decline represented the sharpest daily fall since July 3, 2017.

The gold/silver ratio, which had fallen for a time to 78, has climbed back almost to 80 as a result, noted analysts at Commerzbank led by Carsten Fritsch. “Silver has clearly been dragged down by base metals in recent days, whereas gold has fared somewhat better, despite suffering some losses,” they added.

The analysts also remarked on a mixed demand picture for silver, citing slightly conflicting reports. According to the CPM Group, a financial services provider, global silver demand this year will grow by only 0.8% to 934.2 million ounces. The CPM Group says this is the lowest demand growth since 2012 (when demand decreased) and attributes this to subdued investment demand. Accordingly, the global silver market is likely to show a surplus of around 44 million ounces in 2018 – a somewhat smaller surplus than last year.

By contrast, Thomson Reuters GFMS is more optimistic in the World Silver Survey 2018 it has compiled for the Silver Institute. GFMS envisages a small deficit on the silver market in 2018 after supply already failed to keep pace with demand last year. Because silver is cheap by comparison with gold, GFMS believes this makes silver attractive to investors.

Elsewhere in the metals market, May copper HGK8, +0.03%  rose 0.1% to $3.1465 a pound, while July platinum PLN8, -1.54%  fell 1%, to $925 an ounce.

June palladium PAM8, -1.42%  shed 1.3% to $959.40 an ounce. The contract still trades up about 1.7% month to date despite pulling back sharply in recent sessions. U.S. tensions with Russia, which threaten global supplies of the metal, have recently fueled strong weekly gains.

The SPDR Gold Shares GLD, -0.81% exchange-traded fund fell 0.6% and the iShares Silver Trust SLV, +0.57%  fell 0.8%. The VanEck Vectors Gold Miners GDX, +1.29%  rose 1%.


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