Gold Rally Stalls Amid Rising Yields, Firmer US Dollar
Gold futures are under pressure late in the session on Friday amid a rise in Treasury yields on prospects of U.S. interest rate hikes and a recovery in the U.S. Dollar, following a two-week beat down.
Benchmark U.S. Treasury yields firmed, making the U.S. Dollar a more attractive investment. The greenback’s 0.4% rise against a basket of major currencies, lead to reduced demand for dollar-denominated gold.
Treasury Yields Climb
U.S. Treasury yields climbed on Friday, as investors continued to react to hawkish comments from Federal Reserve officials.
The yield on the benchmark 10-year Treasury note jumped more than 7 basis points to 1.784% in afternoon trading. The yield on the 30-year Treasury bond moved up a similar amount to 2.126%.
Yields have spiked since the beginning of the year, amid concerns around the Fed tightening monetary policy. The jump on Friday erased much of the modest decline from earlier in the week after the 10-year yield briefly topped 1.80% on Monday.
The benchmark 10-year yield was little changed for the week, despite hawkish commentary from Fed officials and economic data that showed slower growth and high inflation.
Fed Officials Supporting Multiple Rate Hikes
Friday wraps up a busy week of commentary from Fed officials, including Chair Jerome Powell’s testimony to the Senate as part of his confirmation process.
Federal Reserve policymakers this week signaled they will start raising U.S. interest rates in March to battle inflation that’s eroding the value of workers’ recent wage gains and putting the policy setters under a political spotlight.
On Thursday, Philadelphia Fed President Patrick Harker told CNBC’s “Closing Bell” that he believed that interest rates could be hiked three or four times this year.
Additionally, Chicago Fed President Charles Evans said he saw three interest rates as most likely this year, but was also open to more.
In what were among the last public comments from U.S. central bankers before their next rate-setting meeting, Fed Governor Lael Brainard on Thursday became the latest and most senior U.S. central banker to signal the current era of near-zero interest rates will come to an end after two pandemic-shook years.
The weaker U.S. Dollar helped support prices most of the week, while the threat of aggressive Fed rate increases put a lid on the rally. The price action essentially confirms that it’s difficult to fight the Fed.