Gold slides on rising dollar and bond yields

Gold declined to a near nine-month low on Friday and was set for a third straight weekly decline, as the dollar and bond yields rose after Federal Reserve chair Jerome Powell’s remarks that the rise in yields were not “disorderly.” 

Spot gold eased 0.2% to $1,693.67/oz by 2.52am GMT, having earlier fallen to its lowest since June 8 at $1,686.40/oz. For the week so far, it is down 2.3%.

US gold futures fell 0.6% to $1,690.90/oz. Powell on Thursday repeated his pledge to keep credit loose and said though the rise in yields was “notable”, he did not believe the Fed will have to intervene to bring them down.

“Clearly, Powell wasn’t dovish enough for markets overnight and, in some ways, greenlighted higher US yields by saying he was comfortable with that,” said Oanda senior market analyst Jeffrey Halley. “All signs point to the bond tantrum continuing,” he said, adding it seems inevitable that gold will break below the current levels and lodge deeper losses to the $1,600/oz region.

The US 10-year yields held above 1.5%, while the dollar surged to three-month highs. Higher yields increase the opportunity cost of holding non-interest paying bullion.

“Powell’s remarks just reinforce the sense that the Fed is slowly moving in the direction of acclimating markets towards there not being substantial further policy support,” said DailyFX currency strategist Ilya Spivak.

Markets are also starting to take into account that with the ramp up in vaccines, another US fiscal package and increasing inflation expectations, the Fed might consider tightening sooner than they expected, Spivak said.

Holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust fell to lowest since May on Thursday. Silver fell 0.4% to $25.21/oz, and was down 5% for the week, its worst since late-November.

Palladium eased 0.1% to $2,337.42/oz and platinum shed 0.6% to $1,118.84/oz.