Gold Futures Hit Six-Week Low as Dollar Continues to Climb

Gold futures are down after hitting their lowest level since December 16 earlier in the session. The market also bounced a little higher after inching inside a key technical retracement zone that could determine the longer-term direction of the market.

The market is in a position to post its largely weekly loss since late November as Treasury yields rose and the U.S. Dollar rallied on an expected U.S. Federal Reserve rate hike in March.

At 13:14 GMT, April Comex gold is trading $1791.20, down $3.80 or -0.21%. On Thursday, the SPDR Gold Shares ETF (GLD) settled at $167.62, down $2.17 or -1.28%.

Fed Tightening Expectations Driving Out Weak Longs

Earlier in the week, the Federal Reserve said it is likely to hike interest rates in March and reaffirmed plans to end its bond purchases that month in what U.S central bank chief Jerome Powell pledged will be a sustained battle to tame inflation.

“The committee is of a mind to raise the federal funds rate at the March meeting assuming that the conditions are appropriate for doing so,” Powell said in a news conference, pinning down a policy statement from the central bank’s Federal Open Market Committee that only said rates would rise “soon”.

Rising Treasury Yields Increasing Opportunity Costs for Gold Investors

The 10-year U.S. Treasury yield rose Friday morning ahead of the release of a key inflation gauge. With the Fed flagging that it was ready to start lifting rates in March to contain surging inflation, money markets moved to price in as many as five quarter-point increases by year-end.

The rise in Treasury yields is not only making the U.S. Dollar a more attractive asset, but it is also increasing opportunity costs for gold investors, which is making the investment less-desirable.

Strong Dollar Limiting Foreign Buying

With the U.S. Dollar rising to a multi-year high, dollar-denominated gold has become more expensive to foreign investors. This is helping to drive investors out of the asset while limiting new foreign buying.

On Friday, the U.S. Dollar is trading higher against a basket of major currencies. This week’s rally has put the greenback in a position to post its biggest weekly rise in seven months as expectations of higher interest rates fueled the U.S. unit’s gains versus rivals.

Daily Forecast

Gold is getting a little boost after a gauge the Federal Reserve prefers to measure inflation rose 4.9% from a year ago, the biggest gain going back to September 1983, the Commerce Department reported Friday.

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Gold traders are also keeping an eye on the Ukraine/Russia situation because an escalation could trigger a strong short-covering rally in the market. On Thursday, Russia said it was clear the United States was not willing to address its main security concerns in their standoff over Ukraine, but both sides kept the door open to further dialogue.