Yesterday, gold prices dropped to their lowest level since June 15 on firm U.S. Treasury yields. Today, bullion prices fell anew on expectations that further economic stimulus would further push government bond yields up. Though the yellow metal is considered as an inflation hedge, higher yields raise the opportunity cost of holding non-yielding bullion.
U.S. Treasury yields went down for four consecutive days but remained near the 1.4% levels.
Spot gold is currently trading at $1,730.68 per ounce as of 0815 GMT.
Kyle Rodda, an analyst at IG Market, suggested that gold prices will continue to struggle if the Federal Reserve does not do anything to control yields and the federal government keeps injecting fiscal stimulus into the American economy. The bullion can only recover if there is an outbreak in inflation expectations and the Fed finally comes out to quash yields. But until then, gold will have the worst of all worlds, he added.
Some analysts predicted that higher U.S. Treasury yields might force might Fed to tighten monetary policy earlier than expected, which would weigh on the bullion.
Despite a potential battle against inflation this spring, Federal officials maintained that they intend to keep a loose monetary policy to accelerate getting more displaced Americans back to work.
Federal Reserve Board of Governor Lael Brainard said the central bank is far from reaching its objectives, and there is still a lot of ground to cover before raising the target federal fund rates from its current level at near zero. San Francisco Fed President Mary Daly added that they cannot react at the first sign that the inflation rate has breached their 2% goal. She said they need to continually reassess the labor market to avoid a preemptive tightening of monetary policy before millions of Americans have an opportunity to benefit.
Meanwhile, market participants will be monitoring the progress of President Joe Biden’s $1.9 billion American Rescue Plan Act of 2021. Senate Majority Leader Chuck Schumer said start they could start the debate on the bill as early as Wednesday. And despite the opposition from Senate Republicans, he said they are on track to sending the bill to the president’s desk before the expiration of the enhanced unemployment benefit on March 14.