Gold price declines as dollar, bond yields climb on Fed chief’s testimony
New York (Feb 27) Gold prices dropped on Tuesday, on track for their biggest single-session decline in a week, as the U.S. dollar strengthened and bond yields climbed on the back of new Federal Reserve Chairman Jerome Powell’s first day of congressional testimony.
Tuesday’s testimony saw Powell “largely stick to [former Fed Chairwoman Janet] Yellen’s approach of cautious hawkishness and studious avoidance of politics,” said Ranko Berich, head of market analysis at Monex Europe, in emailed commentary. “Although he gave no suggestion of a fundamental change in the Fed’s approach to monetary policy, in responding to questions Powell did acknowledge that recent data had further bolstered the case for near term rate hikes.”
April gold GCJ8, -1.22% fell $15.90, or 1.2%, to $1,316.90 an ounce, poised for its biggest one-day dollar and percentage loss since Feb. 20 and lowest finish since Feb. 9. May silver SIK8, -1.37% was down 22.7 cents, or 1.4%, to $16.395 an ounce.
The silver-focused exchange-traded iShares Silver Trust SLV, -1.28% fell 1.3%, while the SPDR Gold Shares GLD, -1.23% declined by 1.1%.
Powell’s prepared remarks, which were released ahead of his appearance on Capitol Hill, were “pretty much as expected, a little hawkish,” said Jeff Wright, chief investment officer at Wolfpack Capital, explaining an earlier, more modest decline in gold prices.
In the prepared remarks released by the House Financial Service committee, Powell said that “in gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2% on a sustained basis.”
The day’s “testimony was never going to be good for gold,” Brien Lundin, editor of Gold Newsletter, told MarketWatch.
“If he was hawkish and worried about inflation, the prospects of more-aggressive monetary policy would have thrown cold water on gold and equities,” he said. “But if he was seen as somewhat dovish and unconcerned over the prospects for inflation, the recently reawakened ‘bond vigilantes’ were likely to send yields higher, and toward the feared 3% threshold.”
“On balance, Powell’s testimony leaned toward the latter, and the 10-year yield began to perk up as he began to answer questions from the committee members,” said Lundin. “While we’ve seen renewed interest in gold as an inflation hedge recently, the even more-recent emergence of the bond vigilantes, driving yields higher than the Fed might want, is a near-term headwind for gold and the stock market.”
While inflation worries could spur safe-haven gold buying, rising interest rates would pressure the metal because bullion pays no interest. Expectations that there could be an additional rate hike helped push the 10-year yield closer to the 3% mark last week. On Tuesday, the yield on the 10-year Treasury note TMUBMUSD10Y, +1.69% climbed to 2.907% from 2.862% late Monday.
The ICE U.S. Dollar Index DXY, +0.52% meanwhile, was up 0.5% to 90.32. Precious metals, often pegged to dollars, tend to fall when the buck strengthens because a falling dollar can make buying those assets cheaper for investors using weaker monetary units.
Data on U.S. durable goods orders in January, which showed a bigger-than-expected decline of 3.7%, had offered earlier support for gold prices, said Wright. Separate data showing February consumer confidence climbed to its highest level since November 2000 later pressured prices..
In other metals, May copper HGK8, -1.22% fell 1.4% to $3.179 a pound.
MarketWatch
