Gold futures were on track to decline for a third straight session Thursday as government bond yields extended their climb to the highest level in a year, complicating the opportunity cost of owning nonyielding gold over sovereign debt.
A rise in bond yields, with the 10-year Treasury note advancing to a psychological threshold at around 1.5% has put pressure on stocks and gold, forcing investors to reassess the relative value of owning either asset against the backdrop of richer rates from risk-free Treasurys.
Two days of congressional testimony from Federal Reserve Chairman Jerome Powell, as part of regular semiannual hearings in Washington, helped to placate markets on Wednesday.
Powell told the House Financial Services Committee yesterday that the Fed will maintain ultralow interest rates and continue hefty asset purchases until “substantial further progress has been made” toward its employment and inflation goals, echoing what he said on Tuesday in front of the Senate Banking Committee.
Powell emphasized that the central bank’s efforts to get the economy back to normal from the COVID-19 pandemic are “likely to take some time” to achieve.
“The gold price is clearly not benefiting from the Fed narrative, which is that loose monetary policy is here to stay for some time,” wrote Naeem Aslam, chief market analyst at AvaTrade, in a daily note.
“Investors believe that this is risk-on time, and they really do not see any reason why they need to hedge their risk if the Fed is holding their back, which has weakened the gold price’s strength,” he said.
That said, progress on vaccination rollouts and boosters for virulent variants of the deadly disease also is helping to support a bullish outlook for the economy in the second half of 2021, which adds to pressure on bond prices, which fall as yields rise.
Gold prices for April delivery on Thursday were down $13,80, or 0.8%, at $1,784.10 an ounce, following a 0.4% slide on Wednesday, which marked the first finish below $1,800 since Friday.
Meanwhile, March silver rose 12 cents, or 0.5%, to $28.01 an ounce, after the industrial and precious metal climbed 0.5% in the previous session.