The allure of gold futures is dwindling as bond yields rise

On Wednesday, gold futures dipped marginally as traders evaluated forecasts of tighter Fed monetary policy and higher yields. Gold futures in the United States fell 0.07 percent to $1,957 per ounce. Meanwhile, spot gold rose 0.3 percent, pulling back from a two-week low.

“We’re seeing higher yields, and we’re still hearing much more hawkish rhetoric from some Fed officials….” “This has taken some of the wind out of gold’s sails, triggering the corrective move that was probably due,” Craig Erlam, senior market analyst, said.
Gold prices sank 1.8 percent on Tuesday as hawkish statements from US central bank officials, particularly St. Louis Federal Reserve Bank President James Bullard, pushed the currency and 10-year Treasury yields to multi-year highs. On Wednesday, the 10-year Treasury Inflation-Protected Securities (TIPS) yield, or real yields, hit two-year highs, temporarily moving into positive territory for the second day in a row.

Rising U.S. interest rates and Treasury yields increase the opportunity cost of holding the non-yielding bullion while strengthening the greenback in which it is priced, making gold extremely vulnerable. The dollar was somewhat lower on the day than it had been the previous session, when it reached a more than two-year high.

According to Carlo Alberto De Casa, an external market analyst at Kinesis, $2,000 was a crucial level of resistance that stopped the rise in gold prices.”A huge majority of investors are also anticipating a 50 basis point rate hike by the Fed.” Gold got close to the crucial threshold of $2,000 per ounce on Monday, but has since been under pressure.