Golden Opportunity Lost: US Treasury Yields and Strong Dollar Cause Precious Metal to Slip

"Gold and Silver Take a Hit as U.S. Yields and National Currency Strengthen Ahead of Expected Interest Rate Hike in May"

Gold and other precious metals experienced a decline in prices on Wednesday, April 19, due to stronger U.S. yields and the national currency. The decrease occurred amid expectations of new interest rate increases next month, which are expected due to persistent inflation in the United States and elsewhere. Spot gold fell by 1.7% to $1,970.31 per ounce by 12:00 GMT, while U.S. gold futures dropped by 1.9% to $1,982.20. Silver also decreased by 1.9% to $24.73 per ounce, and platinum was down 1.5% to $1,066.42. The decrease in the prices of precious metals was preceded by the rising of benchmark U.S. Treasury yields to an almost one-month high, which increased the value of the U.S. dollar and made gold less affordable for buyers paying with other currencies.

According to Ole Hansen, Head of Commodity Strategy at Saxo Bank, the correction was due to the markets readjusting their expectations of the Fed’s rate-hike path. He predicted that gold will rally again once interest rates peak. On Tuesday, St. Louis Federal Reserve Bank President James Bullard said that America’s central bank should continue to raise rates amid persistent inflation. Other Fed representatives are also expected to comment ahead of the monetary authority’s decision in May. Meanwhile, despite the eurozone inflation easing in March, core indicators remain high, and members of the European Central Bank’s Governing Council stated that Europeans are likely to see another interest rate increase after their meeting in early May. With the U.K. experiencing the highest inflation in Western Europe, the same can be expected from the Bank of England as well.

The decrease in gold prices is also attributed to the strengthening of the U.S. dollar, which is expected to continue to rise. The dollar index, which measures the value of the U.S. dollar against other major currencies, is up by 0.2% at 91.278. The U.S. currency has risen by 1.3% so far this month, making it the best-performing currency among the G10 currencies. The dollar’s strength is attributed to the rise in U.S. bond yields, which are at their highest level since late March.

The decline in gold prices is also due to the fact that investors are betting on another interest rate hike in May. The Federal Reserve is expected to raise interest rates by another 25 basis points in May, which will be the second rate hike this year. The Fed has already raised interest rates once this year, in March, and is expected to raise them two more times this year. The expectation of higher interest rates is leading investors to sell gold and invest in other assets, such as stocks and bonds.

Gold prices are expected to remain volatile in the near future due to a number of factors. The rise in U.S. bond yields and the strengthening of the U.S. dollar are likely to continue, which will put pressure on gold prices. However, the expectation of higher interest rates may already be priced into the gold market, which means that gold prices may not fall further. Additionally, the geopolitical tensions between the United States and North Korea, as well as the ongoing conflict in Syria, may lead to a rise in gold prices as investors seek safe havens.

In conclusion, the decline in gold prices on Wednesday, April 19, was due to a number of factors, including the rise in U.S. bond yields, the strengthening of the U.S. dollar, and the expectation of higher interest rates. However, gold prices are expected to remain volatile in the near future due to a number of geopolitical factors. Investors should keep a close eye on the gold market and adjust their investment strategies accordingly.

Martin Reid

Martin Reid

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