Gold futures were on track to post a back to back loss on Wednesday as traders awaited the outcome of a Federal Reserve policy meeting and Treasury yields saw a renewed rise.
U.S. 10-year yields are headed higher, with the 10-year Treasury note climbing back above 1.62% ahead of the Federal Open Market committee decision.
The Federal Reserve and its chairman, Jerome Powell, are expected to maintain that there’s no rush to begin thinking about raising interest rates or tapering the central bank’s bond-buying program. The Fed is scheduled to release a statement at 2 p.m. Eastern, with Powell’s news conference set for 2:30 p.m.
A “sufficiently dovish Fed and a sufficiently convincing accompanying statement could easily reverse the positive pressure on U.S. yields, and result in a softer U.S. dollar against some major peers and gold,” said Ipek Ozkardeskaya, senior analyst at Swissquote, in market commentary.
Higher yields can be a drag on gold and other commodities because it raises the opportunity cost of holding assets that don’t offer a yield. A stronger dollar can be a negative because it makes commodities priced in the currency more expensive to users of other currencies.
Recent softness for gold has mirrored a rise in the yield as well as a recent strengthening of the dollar, said Carlo Alberto De Casa, chief analyst at ActivTrades, in a note.
In Wednesday dealings, gold for June delivery fell $7.80, or 0.4%, to $1,771 an ounce on Comex, following a loss of nearly 0.1% Tuesday.
Meanwhile, May silver fell 47 cents, or 1.8%, to $25.94 an ounce. July silver, which is also among the most-active contracts, traded at $25.98, down 47, or 1.8%.
With gold having “failed to break through the psychological barrier of $1,800 last week,” it is now in a “lateral phase between the major support at $1,750 and resistance at $1,800,” said De Casa.
Still, “the overall outlook remains moderately positive for gold and it is likely to continue trading sideways until a fresh catalyst arrives to shake it out of its $50 trading range,” he said.
Among other metals traded on Comex Wednesday, the most-active July copper contract fell 0.6% to $4.46 a pound.
July platinum declined by 2.8% to $1,214.20 an ounce, while June palladium lost 0.7% to $2,933 an ounce after settling at a fresh record high on Tuesday.
“Industrial metals are still poised to outpace precious metals given economic growth expectations amid the threat of rising inflation” and the eventual expectation that the Fed will be forced to taper quantitative easing and tighten policy, analysts at Sevens Report Research wrote in Wednesday’s newsletter.
“A tighter Fed means a likely rise in real rates which will weigh on gold, but until that time, gold should continue to rally given firm inflation expectations,” they wrote.