Gold fell a second day as bond yields surged, with some investors shrugging off the Federal Reserve’s dovish message and betting that the central bank will allow inflation to overshoot amid an economic rebound.
Yields on benchmark 10-year Treasuries hovered around 1.7% after climbing as much as 11 basis points to 1.75% on Thursday — the highest since January 2020. Fed Chairman Jerome Powell’s willingness to let the economy run hotter with central bank support has boosted expectations for faster inflation. He also indicated he wasn’t concerned over the recent jump in long-term yields, with his focus still on whether financial conditions remained accommodative.
The rise in bond yields has weighed on demand for bullion which doesn’t offer interest, although its role as a hedge against inflation has helped provide some support to prices. During his press conference after the Fed’s meeting this week, Powell said that the price increases this year are likely to be transient and won’t be seen as progress toward the central bank’s long-term goals.
“Powell didn’t say enough to calm the bond market yet, but he has a few speeches coming up soon which could see a change of tone,” said John Feeney, business development manager at Sydney-based bullion dealer Guardian Gold Australia. “Gold investors are too fixated on bond yields right now, and ignoring the fact that gold can still rise in environments where bond yields and interest rates rise, as long as we see inflation.”
Spot gold fell 0.3% to $1 731.94 an ounce by 12:22 p.m. in Singapore, after dropping 0.5% on Thursday. Silver and platinum both retreated. The Bloomberg Dollar Spot Index was flat after climbing 0.5% on Thursday.
Separately on Friday, the Bank of Japan left its main policy rates unchanged, but clarified the size of its movement range for bond yields and scrapped a buying target for stock funds at the end of a policy review meant to give it more flexibility as its fight to stoke inflation extends further into the future.
Meanwhile, palladium has surged 13% this week, the most in a year, on estimates for a larger-than-expected deficit after biggest producer MMC Norilsk Nickel PJSC cut its 2021 output targets following flooding at its Arctic mines.
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