Gold futures ended lower Wednesday, pressured by strength in the U.S. dollar and Treasury yields as upbeat economic data backed expectations for a rate hike by the Federal Reserve.
Price action
-
Gold for December delivery
GC00,
+0.25% GCZ23,+0.25% fell $8.40, or 0.4%, to settle at $1,944.20 an ounce on Comex, with prices for the most-active contract finishing at their lowest since Aug. 25, FactSet data show. -
December silver
SIZ23,
+0.30% declined by 37 cents, or nearly 1.6%, to $23.50 an ounce. -
December copper
HGZ23,
-0.76% settled at $3.79 a pound, down 6 cents, or 1.6%. -
Platinum for October delivery
PLV23,
-0.38% fell nearly 2% to $915.30 an ounce, while December palladium PAZ23,+0.12% shed 0.3% to $1,210.70 an ounce.
Market drivers
Gold found itself under renewed selling pressure Wednesday after stronger-than-expected U.S. economic data “boosted expectations around U.S. rates staying higher for longer,” Lukman Otunuga, manager for market analysis at FXTM, told MarketWatch.
The U.S. ISM barometer of business conditions at service companies rose to 54.5% in August from 52.7%. That was the eighth reading above the 50% threshold that indicates expansion of the economy.
The ICE U.S. Dollar Index DXY, a measure of the greenback against a basket of six other major currencies, traded as high as 105.02, the highest in roughly six months. The yield on the 10-year Treasury note BX:TMUBMUSD10Y, meanwhile, was at 4.295%, up from 4.267% Tuesday afternoon.
“The precious metal remains under the mercy of an appreciating dollar and rising Treasury yields,” Otunuga said.
A stronger dollar can be a negative for commodities, making them more expensive to users of other currencies, while higher interest rates raise the opportunity cost of holding nonyielding assets like gold.
“Until the dollar peak is in place and Treasury yields start dropping, gold is going to have a hard time mustering up a rally,” said Edward Moya, senior market analyst at OANDA.
The Fed’s Beige Book Wednesday, meanwhile, showed that U.S. economic growth was modest in July and August.
On Wednesday, gold investors looked to comments from Boston Fed President Susan Collins, who said she believes the U.S. economy will start to soften as the year draws to a close, and that she expects weak growth to persist in 2024.
The Fed may be near — or at — the peak for the central bank’s policy rate, she said, but further monetary tightening could be warranted, depending on the data.
A surge in oil prices after Saudi Arabia and Russia announced an extension of production cuts also served to stoke inflation worries, reinforcing expectations that the Fed will keep interest rates elevated.
The medium-term direction of gold looks unclear while investors and traders remain unconvinced of the true health of the global economy, Rupert Rowling, market analyst at Kinesis Money, said in a note.
“So while further hikes, particularly in the U.S., are looking less likely, gold looks set to have to endure a period of high interest rates, reducing the appeal of the asset against other interest-bearing classes, such as bonds,” he wrote.
Rowling argued that it was “remarkable” that gold managed to continue to trade above $1,900 an ounce with interest rates above 5% in the U.S. and U.K. and near that level in Europe.
“Lingering fears that the world is heading for a recession and market confidence that is still very fragile following shocks such as the U.S. banking crisis earlier in the year have ensured that gold’s safe haven qualities have continued to appeal,” he said.
Meanwhile, prices for platinum settled lower for a fifth straight session loss, even as the World Platinum Investment Council forecast in a report released Wednesday that the metal will see its largest annual supply deficit on record this year.
