Gold Retreats on Stronger Dollar

gold coins

Gold prices went down on Thursday after rising continuously for six consecutive sessions. A stronger dollar pushed the yellow metal down. The greenback rose 0.1% after the Federal Reserve’s confirmation of its tapering plan this year and stayed near a three-month peak. It made the bullion more expensive for investors using rival currencies.

But gold’s decline was capped by the continuing decline of U.S. Treasury yields that lowered the opportunity cost of owning the non-interest-bearing bullion. The yield on 10-year notes dropped by 4.9 basis points to 1.321%, its lowest level since February 19. It is also on track for its seventh consecutive session of declines. Also, the gap between yields on two- and ten-year Treasury notes has narrowed to 110.4 after flattening to 107.3. This development does not bode well for long-term economic growth.

Spot gold is currently trading at $1,808.04 per ounce as of 0821 GMT.

The minutes of the Federal Open Market Committee’s (FOMC) June 15-16 meeting showed the fed officials felt that economic recovery goals have not been achieved yet. Some participants felt that conditions for asset purchase reduction would be met earlier than expected, while others did not see clear signals from incoming data. The consensus was that the central bank needs to be prepared for tapering in response to unexpected economic developments.

But at his post-meeting news conference, Chairman Jerome Powell said they already had their first discussions about reducing the Fed’s $120 billion monthly bond purchases.

The FOMC kept the benchmark interest rate at 0%-0.25%, which was according to market expectations.

Meanwhile, Atlanta Federal Reserve President Raphael Bostic noted that the rise in Delta variant infections could affect economic recovery. It could cause consumers to “pull back” and discourage Americans from engaging in the economy.

In Europe, the ECB will announce the result of its 18-month strategy review today at 1100 GMT. The bank is expected to abandon its current inflation target at “below but close to 2%” and set a definite goal of 2%.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, dropped by 0.2% yesterday to 1,040.48 tons. Perth Mint’s gold sales in June plunged to an eight-month trough.