Gold Extends Decline by 0.2% as Dollar, Treasury Yields Gain

Gold prices edged lower on Wednesday, pressured by a stronger dollar and a rise in bond yields, while investors cautiously looked forward to U.S. inflation data that could influence the Federal Reserve’s timeline to taper monetary support.

Gold prices remain extra sensitive to the central bank’s announcement and economic indicators. The recent US job data added another supportive pillar to the ongoing Fed’s tapering discussion. The US Dollar Index (DXY), which measures the performance of the greenback against a basket of six major currencies trades strong above 93.00 with 0.15% gains.

Spot gold was down 0.2% at $1,725.98 per ounce by 0048 GMT, while U.S. gold futures fell 0.2% to $1,728 per ounce.

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XAUUSD technical performance chart. [tradingview]
Gold vs Dollar Fundamentals

The dollar index held firm near a three-week high against its rivals, making gold more expensive for holders of other currencies. A higher USD valuation makes gold expensive for other currencies holders. Investors ditched the non-yielding asset as the US 10-year benchmark Treasury yields gather momentum to trade at 1.35%. Investors wait for the US Inflation data to further gauge the market sentiment.

The precious metals have been pressured by a heavily bid US dollar which recently touched its highest level in more than four months against its main rival, the euro as investors speculated further over Federal Reserve’s next move.

U.S. Treasury yields hit their highest levels since mid-July after the U.S. Senate passed a massive infrastructure bill. Higher bond yields increase the opportunity cost of holding non-interest bearing gold.

The Democratic-controlled U.S. Senate on Tuesday passed a massive infrastructure bill and immediately kicked off debate on a $3.5 trillion spending blueprint.

Wall Street rose, with both the blue-chip Dow and benchmark S&P 500 closing at record highs, as economically sensitive value stocks gained with the U.S. Senate’s passage of a $1 trillion bipartisan infrastructure package.

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The Dow Jones Industrial Average, technical performance chart.

Investors now await the monthly U.S. personal consumption report due later in the day to gauge inflationary pressure.

The current inflation spike shouldn’t push the Fed to tighten monetary policy prematurely, with more months of labour data needed before any changes, Chicago Fed President Charles Evans said.

Indications in recent days of an improving labour market have raised fears of a sooner-than-expected U.S. interest rate hike, sending gold prices to a four-month low on Monday.

Gold is viewed as a hedge against higher inflation, but a Fed rate hike would dull bullion’s appeal as that would increase the opportunity cost of holding the non-yielding metal.

Silver eased 0.1% to $23.29 per ounce. Platinum rose 0.7% to $1,001.92 and palladium was steady at $2,640.75.

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