Mounting rate hike bets keep weekly loss in sight for gold
Gold prices rose slightly on Friday but are set for a weekly decline of 2.1 percent. Factors such as inflation worries and rising US Treasury yields have negatively impacted the allure of gold as a safe haven for investors. The Federal Reserve's recent interest rate hike has raised concerns about future increases, further affecting gold's market perception.
Gold prices saw a slight increase on Friday but were on track for a weekly decline, as worries about persistent inflation, aggressive statements from Federal Reserve officials, and higher US Treasury yields reduced the allure of the precious metal. Spot gold climbed 0.1% to $4,282.98 an ounce by 2:05 p.m. ET, indicating a potential weekly loss of around 2.1%.
US gold futures climbed 0.5% to $4,321.20. The relentless rise in Treasury yields has placed gold on track for its fourth weekly decline in the past five weeks, according to Han Tan, chief market analyst at Bybit. The US benchmark 10-year bond yield reached a new 19-year high, increasing the opportunity cost of holding non-yielding bullion.
The metal's zero yield has struggled against challenges such as persistent inflation risks, escalating Treasury yields, and hawkish Fed policy, Tan added. Since the start of the US-Israeli conflict with Iran, surging energy prices kept inflation concerns alive, prompting central banks to adopt stricter policy frameworks to control price pressures.
The Federal Reserve increased interest rates by a quarter point last week, marking its first hike in three years, and hinted at more rate hikes to come. Traders are pricing in a 66% likelihood of an October hike and a 93% chance of one in December, according to CME's FedWatch Tool. Although gold is often seen as an inflation hedge and a secure investment during geopolitical turmoil, higher interest rates diminish its appeal as investors shift towards yield-generating assets.
Bullion has dropped roughly 19% from its February 27 session high. In New York, negotiators are examining a phased exit from the war that could include Tehran lifting the Strait of Hormuz and Washington ending its economic embargo on Iran, according to sources. Oil prices fell about 3% due to some easing of supply concerns. Spot silver increased 0.5% to $64.26 per ounce, platinum climbed 1.7% to $1,780.28, and palladium dropped 0.3% to $1,270.30, all three metals heading for weekly losses.
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