Gold prices fell as US Treasury bond yields rose on Thursday after the Fed’s December meeting minutes signaled faster rate hikes to defuse broadening inflationary risks. Spot gold fell 0.85% to $1,794.5 at press time, while US gold futures were down 1.65% to $1,794.8.
“A strong workforce data means that gold will fall further”
Stephen Innes, managing partner of SPI Asset Management, comments, “What the market should be concerned with with the end goal is how many surprises the Fed will make in the future,” commenting on how developments will affect gold:
If another rate hike comes as a surprise, it would be really negative for gold.
Fed officials said the ‘too tight’ US labor market could warrant raising interest rates sooner than expected, as well as reducing the bank’s total assets to control inflation.
Some investors see gold as a hedge against high inflation, but the precious metal is highly sensitive to rising US interest rates, which increases the opportunity cost of holding the unyielding bullion. Benchmark US 10-year Treasury yields rose to their strongest level since April 2021, increasing the opportunity cost of holding gold.
The ADP National Employment report showed private U.S. payrolls rose more than twice what economists polled by Reuters had estimated last month, raising expectations for nonfarm payrolls to be released on Friday. Evaluating the effects of this situation, Stephen Innes makes the following prediction:
If we have a strong workforce data, gold will definitely fall even further.
David Meger: Increase in bond yields puts pressure on gold
Spot gold could test a support at $1,801 after failing to break the $1,830 resistance, according to Reuters technical analyst Wang Tao. Kunal Shah, head of research at Nirmal Bang Commodities, comments, “With the emergence of the new virus, growth will likely pick up well after the second quarter of 2022.” David Meger, metal trading director at High Ridge Futures, shared:
The gold market has seen a pullback from recent highs in response to Fed minutes. The market was already under pressure in anticipation of a more hawkish Fed. The increase in bond yields is clearly putting pressure on the gold market. However, the underlying support in this market premise, continued inflationary pressures, and virus concerns add some safe-haven demand element.
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As we reported , Fed officials said last month that the US labor market was “very tight”, according to the minutes of the Fed’s December 14-15 policy meeting, not only raising interest rates earlier than expected, but also rapidly reducing asset stocks. Said it might be needed. Fed funds futures are priced in with an 80% chance of a rate hike in March following the release of the Fed minutes.
After the Fed minutes, benchmark 10-year US Treasury rates climbed to the highest level since April 2021, while the dollar (DXY) outstripped losses. Meanwhile, Goldman Sachs states in a note that as digital assets become more widely adopted, the cryptocurrency Bitcoin will take market share from gold in 2022.