Gold Slides As Dollar and U.S. Treasury Yields Bounce Back

Gold Bar

Gold prices slipped on Wednesday as the U.S. dollar and Treasury yields rebounded. Last trading session, the greenback plunged to a more than two-month low because of growing concerns about rising inflation. Today, the American currency rose 0.3% against rival currencies and dented the bullion’s appeal for investors using other currencies.

The yellow metal is generally considered a hedge against inflation. But higher government bond yields dampened that status. The benchmark 10-year Treasury yields climbed to a more than one-week high and raised the opportunity cost of owning the precious metal.

Spot gold is currently trading at $1,833.08 per ounce as of 0751 GMT.

Market participants will be monitoring the release of U.S consumer price data for April, due today at 1230 GMT. Some experts expect inflation to have the biggest yearly gain in almost a decade. Kevin Cummins of NatWest Markets predicted a 3.6% jump in April and 3.9% in May. But Moody’s Analytics chief economist Mark Zandi said the sudden increase in inflation would likely be transitory.

DailyFX strategist Margaret Yang commented that a higher-than-expected rise in inflation rate might force the Federal Reserve to reverse its loose monetary policies faster than expected.

Meanwhile, Fed officials are still grappling with the worse-than-expected employment growth in April. It is puzzling given the record job openings in March. Job vacancies soared to 8.12 million, which is 8% higher than the previous month. In addition, jobless claims dropped below 500,000 for the first time since the COVID-19 crisis began. Weekly unemployment claims as of May 1 went down by almost a hundred thousand from the previous week.

According to Federal Reserve Governor Lael Brainard, the April data suggests that labor demand and labor supply are recovering at different paces. It could be true. Job openings increased by 8% in March, while hiring rose only by 3.7%. She explained that some Americans are still worried about contracting the virus and taking public transportation.

Other Federal Bank presidents, including Loretta Mester, Patrick Harker and Mary Daly, agreed with Brainard. They said job growth depends on getting more Americans vaccinated to make them more comfortable in close-contact jobs and activities. The disappointing job data justifies the Feds’ decision to maintain its bond-buying program and keep interest rates at the crisis level.