Gold price dips as the dollar rises, underpinned by strong US bond yields

May 15, 2018

London (May 15)  Gold dipped on Tuesday, heading for a third consecutive day of losses as a rise in US borrowing costs supported the dollar and overshadowed the impact of strife in Gaza.

Israeli troops shot dead dozens of Palestinian protesters on the Gaza border on Monday when the high-profile opening of the US embassy to Israel in Jerusalem by the Trump administration raised tension to boiling point. But gold investors were fixated on the dollar, which rose against a currency basket as 10-year US bond yields shot above 3%, sending borrowing costs higher in a number of other countries.

"The market is getting increasingly disappointed about [gold’s] inability to react to those [geopolitical] drivers," said Ole Hansen, head of commodity strategy at Saxo Bank. "We’re up against bond yields, the dollar and the fact that rising oil prices have, at this stage, accelerated expectations for rate hikes in the US, due to the risk of inflation."

Spot gold had dipped 0.2% to $1,309.99 an ounce by 9.49am GMT. US gold futures for June delivery fell 0.6% to $1,309.70 an ounce.

A Federal Reserve official this week backed the case for further interest rate hikes in the US, saying inflation had not yet reached the US central bank’s 2% goal in a sustained way. Higher US interest rates tend to boost the dollar and push up bond yields, making greenback-denominated gold more expensive for holders of other currencies and denting the appeal of non-yielding assets such as gold.

"The market’s been waiting for the next rate hike by the Fed … and I think gold prices are going to remain under pressure till we get through that hike," ANZ analyst Daniel Hynes said in a note. "We’re seeing little sparks of interest on the back of [rising geopolitical tensions], but at the moment it doesn’t look significant enough to raise concerns over the medium term, which support a more sustained level of safe-haven buying."

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.17% to 856.17 tonnes on Monday. Spot gold might re-test support at $1,302 an ounce, Reuters technical analyst Wang Tao said.

Silver was down 0.4% at $16.43 an ounce. Platinum was up 0.1% at $904 an ounce, while palladium fell 2% to $975.72 an ounce, after dropping to a more than one-week low at $964.

Britain’s competition and markets authority said on Tuesday that it would examine whether a takeover of miner Lonmin by SA’s Sibanye-Stillwater would lessen competition.


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