Gold prices fell modestly on Wednesday, consolidating ahead of Federal Reserve Chairman Jay Powell’s monthly news conference that could give an indication on what the central bank intends to do about surging bold yields that are limiting the rally in both stocks and commodities.
Gold for April delivery settled down $2.80, or 0.2%, at $1,728.10, an ounce on New York’s Comex. For the week though, the benchmark futures gold contract was up almost 0.5%.
But there are expectations that Powell will express some concern at least over this year’s stunning selloff in Treasury markets, which has consistently led the yield on the 10-year Treasury note to hit pre-pandemic highs above 1.6% over the past month, the latest being on Friday.
The surging bond yields have been an anathema to gold, forcing the yellow metal to lose 17% from record highs of nearly $2,100 in August. Any indications by the Fed that it will intensify bond buying in the coming months could just be the thing to clamp down on surging yields and spark a rally in gold.
Despite the expectations placed on Powell, some also think the Fed chairman will say nothing of significant value to alter the upward trajectory of yields.
“Bond traders are already expecting the 10-year Treasury yield to finish the year around 2.0%, so not many would be surprised if we overshoot and hit 2.25% at some point this year,” said Ed Moya, analyst at New York’s OANDA.
“The Fed is not in a rush to signal what are the inflation thresholds that would get them worried over the long-term, so traders should expect Powell to deliver another dovish dance.”
For decades, gold was touted as the best store of value whenever there were worries about inflation. Yet, in recent months, it was deliberately prevented from being the go-to asset for investors as Wall Street banks, hedge funds and other actors shorted the metal while pushing up U.S. bond yields and the dollar instead.
Bond yields have surged on the argument that economic recovery in the coming months could extend beyond Fed expectations, leading to spiraling inflation, as the central bank insists on keeping interest rates at near zero.
The dollar, which typically falls in an environment of heightened inflation fears, also rallied instead on the same runaway economic recovery logic. The greenback’s status as a reserve currency has bolstered its standing as a safe haven, leading to new long positions being built in the dollar. In recent days, the Dollar Index has hit the key bullish level of 92, further capping gold’s rise.