Gold prices edged lower early Thursday in New York, with bullion under pressure from a one-two punch of rising U.S. government debt yields and a strengthening dollar.
December gold GCZ8, +0.06% shed 50 cents, or less than 0.1%, to $1,202.50 an ounce, after declining by 0.3% from a two-week high put in earlier in week. Still, the metal is poised to gain 0.5% this week, according to FactSet data, based on the most-active contracts.
Because precious metals — usually used as a haven by investors — don’t offer a yield, the commodity is vulnerable to a slump in a rising rate environment. The Federal Reserve has already increased rates three times in 2018 and is expected to lift benchmark rates a fourth time in December, moves which can drive risk-free Treasury yields higher and undercut appetite for the yellow metal by comparison.
The 10-year Treasury note yield TMUBMUSD10Y, +0.84% recently was recently around 3.22%, extending a move to its highest level since 2011.
Meanwhile, another headwind for gold, the dollar, was strengthening in tandem with rising rates for government debt because climbing yields also can lure currency investors into monetary units where they can park funds and collect attractive yields. Moreover, a beefier greenback can make assets priced in dollar, like gold, more expensive to potential purchasers using other monetary units.
The ICE U.S. Dollar index DXY, -0.15% which is heavily weighted toward the euro, was most recently up 0.1% at 95.87.
The current market dynamic has some market participants forecasting a further downturn for gold.
“After waffling its way through September, the greenback is starting to reassert itself supported by a significant fair wind from the U.S. rates markets with 10-Year [U.S. Treasury yield TMUBMUSD10Y, +0.84% ] holding north of 3.15%, wrote Stephen Innes, head of trading at OANDA, in a late Wednesday note. “It is difficult to envision gold tracking any which way but down,” he said.
Perhaps capping any downturn in gold and other precious metals is a broad slump in equity benchmarks, with the Dow Jones Industrial Average DJIA, +0.20% and the S&P 500 index SPX, +0.07% poised to face pressure from the gravitational pull of richer rates, which can sap buying in stocks against Treasurys.
Gold’s status as a haven asset in times of stock-market turmoil is currently buoying the commodity, market participants said.
Mostly, bullion has been in a downturn that has been driven by slack in demand, but that dynamic may be shifting.
“Interestingly, the yellow metal tumbled by much less than one would have expected yesterday given the remarkable gains in the dollar, which suggests that demand may be slowly picking up,” wrote Marios Hadjikyriacos, analyst with brokerage XM, in a Thursday note.
Meanwhile, December silver SIZ8, +0.17% shed a penny, or less than 0.1%, at $14,67 an ounce, after sliding by 0.2% on Wednesday. Gold’s sister metal is on track for a weekly decline of 0.3%.
