Gold futures climbed on Tuesday, shaking off pressure from strength in the U.S. dollar and Treasury yields, to stretch their gains into a third-consecutive session and mark their highest finish in almost three weeks.
“The only trade finding any real conviction right now seems to be betting on faster rate hikes sooner from the [Federal Reserve],” said Adrian Ash, director of research at BullionVault. He said he expects higher interest rates to act “like kryptonite to gold, sapping its strength.
However, “the Fed is clearly so far behind the curve on inflation that the solid bid for gold says it’s either too late to ever catch up, or it’s about to make a historic mistake, hiking just as the economy cools down,” Ash told MarketWatch.
April gold GC00, +0.36% GCJ22, +0.36% climbed by $6.10, or 0.3%, to settle at $1,827.90 an ounce — the highest most-active contract settlement since Jan. 26, FactSet data show. Prices rose 0.8% on Monday to mark the precious metal’s biggest one-day percentage gain since Jan. 19.
Prices for the metal touched highs above $1,825 after data released Tuesday showed that the U.S. trade deficit jumped 27% in 2021 to a record $859 billion. The deficit widened in December by 1.8% to $80.7 billion — the second largest monthly increase ever.
A fresh “supportive storyline” for gold might surface from the U.S. trade front with reports that U.S. officials have expressed concern and dismay that China has not met its trade promises,” analysts at Zaner wrote in Tuesday’s market commentary.
Following the U.S. trade deficit data, “focus on trade with China could become a more prominent flight to quality issue like the Ukraine conflict,” they wrote ahead of the data’s release, implying a climb in haven demand for gold.
Before the trade deficit data, gold had been trading mostly lower as yields for government debt rose and the U.S. dollar strengthened.
The yield on the 10-year Treasury note TMUBMUSD10Y, 1.956% was up at 1.96%, to around highs not seen since 2020, and the dollar was up 0.2%, as gauged by the ICE U.S. Dollar Index DXY, +0.25%, a measure of greenback against a half-dozen rival currencies.
Higher yields and a stronger dollar can undermine interest in dollar-pegged bullion, which doesn’t offer a coupon.
“Still-elevated inflation expectations saw traders buy gold ahead of this week’s key CPI report on Thursday, which has the potential to be a major catalyst for the gold market this week,” analysts at Sevens Report Research wrote in Tuesday’s newsletter.
“If we see a hot report and the odds of a 50-bps hike next month rise, then expect hawkish money flows and rising real rates to hit gold,” they said. “If the report is not as-hot-as-feared, then a continued rally into the mid-$1,800s will become increasingly likely as the Fed will be viewed as ‘behind the curve’ by the market,” so higher inflation for longer.”
Meanwhile, March silver SIH22, +0.52% rose 12 cents, or 0.5%, at $23.20 an ounce, after rising 2.7% on Monday.
March copper HGH22, -0.15% lost less than 0.1% to $4.461 a pound. April platinum PLJ22, +1.32% tacked on 1.6% to $1,036.30 an ounce and March palladium PAH22, -0.45% settled at $2,264.20 an ounce, up 0.2%.