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Metals Stocks: Gold prices finish lower as Treasury yields rise

Gold futures headed lower on Tuesday, giving up earlier gains on the back of a rise in U.S. Treasury yields, as investors continue to monitor developments tied to the Russia-Ukraine war and worry about inflation.

“It might only be three short years ago, but the last time that 10-year yields
TMUBMUSD10Y,
2.559%

were above 2.5%, inflation was running at 1.8%, both the Nasdaq
COMP,
-1.70%

and S&P [500]
SPX,
-0.65%

half their current levels, house prices were 25% cheaper, and gold cost $1300 per ounce,” Adrian Ash, director of research at BullionVault, told MarketWatch.

“Other things equal, bond yields rising to multi-year highs would typically knock gold lower,” he said. “But with the purchasing power of cash so clearly diminished since bond yields were last at this level, the dislocation of war and inflation is further offsetting that pressure,” driving some inflows to gold as a hedge against crisis and a form of financial insurance.”

There’s also the “growing risk of a Fed mistake in hiking too fast too late to achieve anything beyond a recession,” said Ash.

Inflation is running very hot and could move up even higher, necessitating steady interest rate increases and a shrinking of the balance sheet, Federal Reserve Board Governor Lael Brainard said Tuesday.

Gold for June delivery
GC00,
-0.47%

GCM22,
-0.47%

edged down by $9.80, or 0.5%, to $1,924.10 an ounce on Comex after posting a gain of 0.5% on Monday. May silver
SIK22,
-0.39%

lost 12.5 cents, or 0.5%, to $24.455 an ounce.

“The main drivers for the gold market continue to be the war in Ukraine and inflation,” said Peter Grant, vice president and the senior metals strategist at Zaner Metals and Tornado Precious Metals Solutions.

“Continued talk of progress in peace talks has weighed on gold of late, but last week’s probe back below $1,900 was limited and short-lived,” he said in a Tuesday newsletter. “As the west ramps up Russian sanctions even further, the reported atrocities in the Kyiv suburb of Bucha may make the Ukrainians less inclined to negotiate a peace deal.”

Western leaders said they would investigate evidence of alleged war crimes by Russian forces and talked up the possibility of additional sanctions against Moscow.

Ukraine War: Europe considers restricting Russian gas and oil imports

“On the other hand, market expectations that the [Fed] will accelerate the pace of tightening, are capping the demand for gold,” said Ricardo Evangelista, senior analyst at ActivTrades, in a note. “As Treasury yields continue to rise, so does the cost of holding nonyielding bullion, and further bond market weakness is likely to trigger more pronounced losses for gold.”

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.559%

was at 2.556%, up from 2.409% Monday afternoon.

In other metals trading on Comex, May copper
HGK22,
-0.08%

fell 0.1% to $4.775 a pound. July platinum
PLN22,
-1.88%

fell 2% to $971 an ounce, but June palladium
PAM22,
-0.88%

traded at $2,243 an ounce, down 1.4%.

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