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Metals Stocks: Gold logs lowest finish in more than 3 weeks as U.S. dollar’s jump outshines haven appeal

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Gold futures declined Monday, with prices marking their lowest settlement in more than three weeks despite a global equity market selloff as strength in the U.S. dollar outshined the yellow metal’s appeal as a haven investment.

Gold for August delivery
GC00,
-2.39%

GCQ22,
-2.39%

fell $43.70, or 2.3%, to settle at $1,831.80 an ounce on Comex. Prices based on the most-active contract settled at the lowest since May 18, according to FactSet data.

July silver
SIN22,
-3.06%

sank 68 cents, or 3.1%, to $21.255 an ounce, with prices at their lowest finish since May 13.

Gold had seen prices rise on Friday as stocks and other assets perceived as risky came under pressure following data that showed the U.S. consumer-price index rose at a 40-year high of 8.6% year-over-year in May, defying expectations of investors looking for evidence that inflation had peaked. The reading is seen prompting the Federal Reserve to move even more aggressively than expected to tighten monetary policy in an effort to get inflation under control, risking a recession.

The Fed is widely expected to deliver a rate hike of 50 basis points, or half a percentage point, when it concludes a two-day policy meeting on Wednesday.

“Rising rates and soaring yields present a serious headwind for gold short term, because the precious metal pays no income,” Adrian Ash, director of research at BullionVault, told MarketWatch.

“ “In a sweeping financial drop like this, it’s rare for gold not to get caught in a short-term selloff at some stage.” ”

— Adrian Ash, BullionVault

“In a sweeping financial drop like this, it’s rare for gold not to get caught in a short-term selloff at some stage,” he said. “The question now…is when gold’s appeal as a crisis hedge will reassert itself, pulling in new long-term flows as more investors try to insure against stagflation as well as today’s worsening geopolitical tensions and the sudden bear market in risk assets.”

Meanwhile, strength in the U.S. dollar Monday, as global equities continued to fall, put pressure on dollar-denominated gold prices. Treasury yields were also on the rise, raising the opportunity cost of holding nonyielding assets like gold.

The ICE U.S. Dollar Index
DXY,
+0.61%
,
a measure of the currency against a basket of six major rivals, was up 0.7%, trading near a 20-year high.

“It is possible that the central bank will extend its summer action from two to three hikes, with some analysts talking about the possibility of this Wednesday’s rate decision surprising with a 75bp rise, instead of the previously expected 50bp,” said Ricardo Evangelista, senior analyst at ActivTrades, in emailed comments. “Against such background, gold will find support from the flight to safety, as investors abandon riskier assets, however, such gains will be capped by the strengthening dollar and rises in treasury yields.”

Other metals ended lower on Comex, with July copper
HGN22,
-1.80%

down 1.9% at $4.212 a pound. July platinum
PLN22,
-4.28%

lost 4% to $932.30 an ounce and September palladium
PAU22,
-6.32%

settled at $1,778.40 an ounce, down 6.7%.

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