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Metals Stocks: Gold ends higher as rise in Treasury yields and dollar eases

Gold futures edged higher Tuesday, attempting to hold ground after suffering its worst day in two months as it traded near levels last seen in mid-February.

Gold for June delivery


was up $5.60, or 0.3%, at $1,869 an ounce after slumping 2.5% on Monday. May silver

rose 0.4% to $22.63 an ounce.

Gold, which had tested the $2,000 level in April before turning south, has suffered as U.S. Treasury yields surged to levels last seen in 2018, with real, or inflation-adjusted yields, flirting with positive territory. Rising yields can be a negative for nonyielding assets, like gold.

The dollar, meanwhile, has surged versus major rivals, sending the ICE U.S. Dollar Index
a measure of the currency against a basket of six major rivals, toward 20-year highs. A stronger dollar can be a negative for commodities priced in the unit, making them more expensive to users of other currencies.

“We are worried about the strength of the dollar and how that might put more downward pressure on gold prices,” said Leigh Goehring, managing partner at Goehring & Rozencwajg Associates, by phone. “The dollar has been unbelievably strong.”

That said, Goehring will tune in Wednesday afternoon for the conclusion of the Federal Reserve’s two-day policy meeting to hear more on the U.S. central bank’s plans for aggressively hiking short-term interest rates this summer to help tame inflation at 40-year highs.

“They are going to try to talk inflation down,” he said. “I don’t think they are going to be able to do it.”

While the path to higher interest rates could continue to strengthen the dollar, and weigh on gold, some investors have grown concerned about how high the Fed can raise rates before it becomes a drag on markets or the economy.

Increasing demand for gold exposure in April helped fuel $2.1 billion in inflows to U.S. commodity exchange-traded funds for the month, according to a report form State Street Global Advisors, even though ETFs overall posted $10 billion of net outflows.

Still, it has been a rough patch for investors in safe-haven and risk assets alike.

“Gold bulls are being carried out in a stretcher,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note.

“The cumulative weight of positive real yields and a fired-up dollar has proven too much for the yellow metal, which cracked below the $1,860 region. The silver lining is that the drop hasn’t been dramatic considering the seismic moves in yields, with gold being one of the few assets that is still trading higher for the year thanks to geopolitical stress.”

In other metals trade, July copper 

 rose 0.4% to $4.29 a pound.

July platinum 

advanced 2.8% to trade at $959 an ounce, while June palladium

 gained 1% to $2,239 an ounce.

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