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Metals Stocks: Gold prices end lower in the wake of Powell’s hawkish rate remarks

Gold futures ended with a loss on Tuesday, pressured by a rise in U.S. Treasury yields to levels last seen in 2019.

The move for the precious metal comes a day after Federal Reserve Chairman Jerome Powell said policy makers could deliver half percentage point interest rate hikes at future policy meetings in a bid to rein in U.S. inflation which is at levels not seen in 40 years in the wake of the coronavirus pandemic.

“Renewed Fed rate hike expectations, an appreciating dollar, and rising Treasury yields are nothing but trouble for zero-yielding gold,” said Lukman Otunuga, manager, market analysis at FXTM.

“However, the uncertainty emanating from the heightened geopolitical tensions continues to foster a sense of unease stimulating appetite for safe-haven assets like gold,” he said in a market update.

Gold for April delivery
GC00,
-0.38%

GCJ22,
-0.38%

fell $8, or 0.4%, to settle at $1,921.50 an ounce on Comex after eking out a less than 0.1% rise on Monday. May silver
SIK22,
-1.49%

fell 41 cents, or 1.6%, to $24.904 an ounce.

“In the commodity sphere, gold has been remarkably resilient,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note. Gold futures trade around 1.1% higher for the month so far.

Powell, in a Monday address at an economic conference, said that while no decision had been made, the Fed was prepared, if necessary, to raise rates in increments of more than 25 basis points, or a quarter percentage point. Some policy makers have already called for such a move.

Indeed, St. Louis Fed President James Bullard dissented in favor of a half-point rise at last week’s policy meeting, when the Fed delivered a 25 basis point increase. On Tuesday in a Bloomberg Television interview, Bullard said the Fed needs to move aggressively and get U.S. interest rates high enough to where they are “mildly” restricting economic activity to keep inflation under control.

Treasury yields soared, with the yield on the 10-year note
TMUBMUSD10Y,
2.379%

rising well above 2.30% to its highest level since May 2019. Rising yields can be a negative for gold because they raise the opportunity cost of holding assets that don’t offer a yield. The dollar has also strengthened so far this week, in reaction to Powell’s remarks. A stronger dollar can also be a headwind because it makes commodities priced in the unit more expensive to users of other currencies.

“Even though soaring yields and a stronger U.S. dollar should be grave news for the yellow metal, bullion has escaped with only minor injuries so far,” Hadjikyriacos said.

Gold seems to be finding overall support as a result of the Russia-Ukraine war and other worries.

“Safe-haven demand seems to be negating the impact of tighter monetary policy.
Investors are looking for a hedge that will protect their portfolio against geopolitical turmoil, and since holding bonds can be very painful in an environment of rising rates and raging inflation, many are warming up to gold instead,” the analyst said.

In other metals trading, May copper
HGK22,
-0.12%

shed 0.2% to $4.70 a pound. April platinum
PLJ22,
-1.61%

fell 1.9% to $1,025.10 an ounce and June palladium
PAM22,
-1.98%

declined 2.4% to $2,476.50 an ounce.

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