Gold futures were headed lower Tuesday morning, weighed by a pickup in yields for government debt and some firmness in the U.S. dollar.
A gauge of the U.S. dollar, the ICE U.S. Dollar Index
DXY,
+0.29%,
was trading 0.3% higher, while the 10-year Treasury note yield
TMUBMUSD10Y,
1.506%
was up near 1.50%.
A stronger dollar can make dollar-pegged precious metals more expensive to overseas buyers, while yield buoyancy can raise the opportunity costs of buying Treasurys versus gold and silver which don’t offer a yield.
August gold
GCQ21,
-0.85%
GC00,
-0.85%
was off $9.60, or 0.5%, at $1,771.10 an ounce, after bullion climbed 0.2% on Comex on Monday. July silver
SIN21,
-1.17%
SI00,
-1.17%
was trading 23 cents, or 0.9%, lower to around $25.99 an ounce, following a 0.5% gain a day ago.
Investors remain focused on the Federal Reserve and the central bank’s outlook for inflation in the recovery phase of the U.S. economy from COVID-19.
The outlook for gold is complicated by the Fed’s view that higher inflation is temporary and a rise in interest rates will only happen slowly and probably not until late 2022.
Gold tends to benefit from rising inflation and lower interest rates.
“The markets appear increasingly unsettled by the Fed’s taboo on inflation, with a growing number of investors taking a net view that the central bank’s ambiguity, mixing a new hawkish stance with dovish declarations from some officials, will ultimately translate into higher interest rates sooner than previously expected,” wrote Ricardo Evangelista, senior analyst at ActivTrades, in a Tuesday note.
Evangelista projects that such a scenario will underpin the dollar and provide more turbulence for bullion, which could “therefore, generate more short-term losses for gold.”
