Gold Weighed Down by Dollar and Yields
Gold weakened for a second day after higher-than-expected US inflation raised the odds of a Federal Reserve interest rate hike this year. Bullion prices were quoted around US$4,695/oz.
The decline continued after gold briefly fell 0.4% on Tuesday. Data showed the US CPI in April jumped the most since 2023, while real wages (net of inflation) fell for the first time in three years.
Interest rate market pricing is also becoming more assertive. Overnight-indexed swap contracts now price in more than a 40% chance of a Fed rate hike by the end of the year, up from nearly zero at the end of last month.
Rising interest rate expectations have also pushed up US bond yields, as investors demand greater compensation amid inflationary pressures perceived as still "sticky" due to high energy prices. In such conditions, gold typically comes under pressure because it does not provide an interest yield.
However, JPMorgan believes the relationship between gold and interest rates is asymmetrical: gold often resists when interest rates rise, but strengthens more readily when yields fall. According to JPMorgan, the main support factor comes from demand, particularly strong buying by central banks, which is helping gold remain resilient.
On the domestic policy front in Asia, India raised import duties on gold and silver to around 15% from 6%, a move cited as an effort to defend its currency and strengthen foreign exchange reserves. In recent trading, spot gold fell 0.4% to US$4,695.18/oz, while silver remained relatively stable at US$86.47 (up 17% throughout May), while the Bloomberg Dollar Index edged up 0.1% after gaining 0.3% in the previous session.
5 key points:
- Gold fell for a second day to around US$4,695/oz.
- US April CPI surged the most since 2023; real wages fell for the first time in three years.
- Markets are pricing in a >40% chance of a Fed rate hike by year-end.
- US yields are rising; higher interest rates generally weigh on gold because they provide no yield.
- JPMorgan: Demand, particularly central bank buying, keeps gold relatively resilient; India raises gold/silver import tariffs to -15% from 6%. (asd)
Source: Newsmaker.id
