Gold Falls Back as U.S. Treasury Yields Recovers

bull bear trends

Gold prices slipped on Wednesday on higher U.S. Treasury yields. The yellow metal lost around 0.2% today after climbing yesterday to $1,916.49, its highest since January 8. It also registered its best month since July 2020 in May, driven mainly by the weaker dollar and higher consumer prices in the U.S. and the UK.

The 10-year benchmark yield rose above 1.6% and raised the opportunity cost of owning non-interest-bearing assets such as gold. Higher yields and robust U.S. economic data led investors back to riskier assets and dented the demand for the bullion. The financial markets, in general, remained upbeat on the latest U.S. economic data.

Spot gold is currently trading at $1,898.27 per ounce as of 0801 GMT.

The Institute for Supply Management (ISM) reported that U.S. factory activity increased from 60.7 in April to 61.2 in May. It is higher than economists’ forecast of 60.9. The manufacturing growth is attributed to the increase in production orders amid the reopening of the economy. However, the ISM said manufacturers are struggling to meet growing demand because of a wide-scale shortage of raw materials, historic long lead times, rising commodities prices and difficulties in product transportation.

SPI Asset Management managing partner Stephen Innes said the decline in gold prices resulted in some decent profit-taking. Despite some concerns regarding the upcoming release of U.S. nonfarm employment data, he said the inflation signs remain favorable for the precious metal. But IG Market analyst Kyle Rodda argued that the short-term outlook of gold depends on global inflation data. It will also be affected by the reaction of the central banks to inflation development.

Meanwhile, the inflation rate in the eurozone jumped from 1.6% in April to 2% in May, mainly due to higher energy costs. It is higher than experts’ forecast of 1.9 and the European Central Bank’s (ECB) target of below but close to 2%. According to Bavarian Finance Minister Albert Füracker, the higher inflation rates are compounding the problems of savers. He suggested that the ECB should raise the interest rates from 0%. Füracker also criticized the ECB’s zero interest rate policy as a poison for the typical savings plan.

In a related development, the holdings of the largest gold-backed exchange-traded fund, SPDR Gold Trust, increased by 0.3% yesterday to 1,045.83 tons.