Gold Set for Biggest Quarterly Drop in More Than Four Years on Strong U.S. Dollar and Treasury Yields

Futures

Gold prices plunged to their lowest level since March 8 as the U.S. dollar and Treasury yields continue to rise. The bullion was on track for a third monthly decline and its worst quarter since the last quarter of 2016. So far, the yellow metal has fallen by 3% this month and 11.4% this quarter.

The dollar index rose close to a five-month peak and was on track to have its highest monthly gain in over four years. The U.S. 10-year Treasury yield remained close to a 14-month reached in the last session and is set for a fourth consecutive monthly gain.

Spot gold is currently trading at $1,64.54 per ounce as of 0754 GMT.

OANDA’s senior market analyst Jeffrey Halley noted that gold looks vulnerable and was unable to hold its own against the dollar’s rally.

OCBC Bank economist Howie Lee argued that the U.S. stimulus could be positive for gold because it will drive inflation rates. And the bullion is often used as an inflation hedge. However, the stimulus could also boost government bond yields and risk sentiment, which would weigh on gold.

Meanwhile, the Conference Board reported that the U.S. consumer confidence climbed by 19.3 points to 109.7 in March. It is the highest level since March 2020 and the highest monthly gain since April 2003. Consumers’ assessment of the current labor market and business conditions jumped from 89.6 to 110 this month, and the expectations index soared from 90.9 to 109.6. These figures suggest an acceleration of economic growth in the coming months, which would be negative for gold.

In another sign of recovery, Federal Reserve officials expressed their optimism about the U.S. economic outlook as government aids get to businesses and households, and more Americans are getting vaccinated. Richmond Federal Reserve Bank President Thomas Barkin said he is very bullish on growth in 2021 and expects consumer spending to remain strong for the next couple of years. Atlanta Federal Reserve Bank President Raphael Bostic said he would be looking out for upside risk in the trajectory of the economy.

International Monetary Fund Managing Director Kristalina Georgieva said they would raise their global economic growth forecasts for 2021 and 2022. It is mainly because of the increased fiscal spending in the U.S. and the possibility of vaccine-powered recovery in other developed countries. The new forecasts would be released next week.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, grew by 0.1% from 1,036.62 tons on Friday to 1,037.50 tons on Monday.