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Gold falls as firm dollar, yields compound rate-hike woes

July 14, 2022By Reuters

July 14 (Reuters) – Gold prices fell 1% on Thursday, as Treasury yields and the dollar rose, with bullion’s outlook already dented by fears the US Federal Reserve could opt for a more aggressive interest rate hike this month to tackle sky-rocketing inflation.

Spot gold retreated 1% to USD 1,718.69 per ounce by 0757 GMT. US gold futures also lost 1% to USD 1,717.70.

The dollar set a fresh 20-year high, hurting demand for greenback-priced gold among buyers holding other currencies.

Benchmark US 10-year Treasury yields rose, weighing on appetite for zero-yield gold.

Data released overnight showed US annual consumer prices jumped 9.1% in June, the sharpest spike in more than four decades.

“The CPI release generated volatility but not direction,” said Ilya Spivak, a currency strategist at DailyFX, reasoning that markets now likely expected the Fed to front-load rates more, and not necessarily tighten more overall, but said gold still had a bearish outlook.

A rallying dollar sent gold prices to a near one-year low on Wednesday following the inflation report, but a retreat in the greenback helped bullion make a sharp recovery and end the session higher.

Global markets swung wildly in the previous session. On Thursday, Asian shares struggled on fears the Fed’s aggressive monetary policy could trigger a recession.

The Fed is seen ramping up its battle to curb inflationary pressures with a supersized 100-basis-point rate hike at its upcoming policy meeting on July 26-27.

Although gold is seen as an inflation hedge, higher rates hurt the appeal of bullion, which bears no interest.

“It would be silly to say that 75 basis points is dovish, but there is a risk here that the Fed does something that’s objectively big, like 75, but gold rallies because it’s not 100,” Spivak said.

Spot silver dipped 1.1% to USD 18.98 per ounce, platinum slipped 1.5% to USD 841.96, and palladium dropped 1.3% to USD 1,949.43.

(Reporting by Bharat Govind Gautam in Bengaluru; Editing by Rashmi Aich and Sherry Jacob-Phillips)

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