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

United States

Gold futures pulled back Monday, with prices on track to mark their lowest settlement in more than three weeks despite a global equity market selloff as a rising U.S. dollar appeared to outshine the yellow metal’s appeal as a haven.

Gold for August delivery GC00, -2.47% GCQ22, -2.47% fell $ 46.10, or 2.5%, to $ 1,829.40 an ounce on Comex. Prices based on the most-active contract haven’t settled at a level this low since May 18, according to FactSet data.

July silver SIN22, -3.99% sank 95.1 cents, or 4.3%, to $ 20.98 an ounce, with prices in danger of their lowest finish since May 12.

Gold rose 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 sell off 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 sell off 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, +0.81%, a measure of the currency against a basket of six major rivals, was up 0.8%, 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 traded lower on Comex, with July copper HGN22, -2.47% down 2.8% at $ 4.173 a pound. July platinum PLN22, -4.26% lost 4.3% to $ 929 an ounce and September palladium PAU22, -5.56% traded at $ 1,795.50 an ounce, down 5.9%.