Gold on track for weekly fall as rate hike fears persist

Gold prices were flat on Friday but on course for their second straight weekly decline, with worries over major central banks potentially implementing big interest rate hikes to contain runaway inflation weighing on bullion demand.

Spot gold was up 0.1% at $1,823.67/oz at 4.39am GMT, after hitting a one-week low of $1,820.99 earlier in the session. US gold futures fell 0.2% to $1,825.80. Gold prices have dropped about 0.8% this week.

The US Federal Reserve’s commitment to reining in 40-year-high inflation is “unconditional,” chair Jerome Powell told legislators, even as he acknowledged that sharply higher interest rates may push up unemployment.

“The US dollar remains firm and expectations now lean towards a 75 basis point Fed hike in July. The TIPS spread — a market-based proxy for inflation expectations — is also near a four-month low, and these have kept a lid on any gold rally,” City Index senior market analyst Matt Simpson said.

The dollar was slightly lower, making greenback-priced gold less expensive for buyers holding other currencies. However, benchmark US 10-year Treasury yields firmed, limiting demand for gold. Higher interest rates and bond yields raise the opportunity cost of holding bullion, which yields no interest.

“Gold looks vulnerable over the near term, given its inability to break $1,850, its 200-day average, this week,” Simpson said, adding that, “were it not for the fear of a global recession then gold would likely be lower than it already is.”

SPDR Gold Trust, the world’s largest gold-backed exchange traded fund, said its holdings fell 0.81% to 1,063.07 tonnes on Thursday from 1,071.77 tonnes a day earlier.

Spot silver firmed 0.3% to $21/oz and platinum rose 0.9% to $914.99, but both were set for weekly losses. Palladium climbed 1.5% to $1,871.48 and has gained about 3.2% this week.

Reuters