Gold falls to 2.5-month low, Fed rate hike in focus

Gold bars and coins are stacked in the safe room of the Pro Aurum gold house in Munich, Germany August 14, 2019. REUTERS/Michael Dalder

May 3 (Reuters) – The price of gold fell to its lowest level since mid-February on Tuesday as investors braced for more aggressive rate hikes from the U.S. central bank, which pushed up dollar and Treasury yields and increased the opportunity cost of holding gold.

Spot gold fell 0.3% to $1,857.48 an ounce at 0942 GMT. Prices fell to $1,849.90, the lowest level since Feb. 16, earlier in the session.

US gold futures also fell 0.3% to $1,857.50 an ounce.

“Market attention is very much on monetary policy tightening by major central banks, especially the Federal Reserve,” said Ricardo Evangelista, senior analyst at ActivTrades.

“We’ve seen 10-year Treasury yields go over 3% and that’s very penalizing for an asset that’s not paying like gold.”

Investors expect the Fed to hike rates by 50 basis points after a two-day meeting on Wednesday to rein in soaring inflation, while comments from Chairman Jerome Powell will be scrutinized looking for new signals on rate hikes.

Benchmark 10-year U.S. Treasury yields hovered at 3%, a key psychological level, for a second straight day on Tuesday, as the dollar held near 20-year highs, sending gold priced higher. dollar less attractive to foreign buyers.

“Spot gold has broken below support targets last seen in mid-February 2022 and looks to test subsequent levels as fundamentals look to align with bullion,” the statement said. DailyFX analyst Warren Venketas in a note.

“The dollar remains favored as the US economy is able to withstand such an aggressive tightening regardless of external factors, leaving gold exposed to a long downside.”

While gold is seen as a hedge against inflation, rising interest rates and US bond yields increase the opportunity cost of holding zero-return bullion.

Spot silver fell 0.1% to $22.61 an ounce, platinum firmed 0.8% to $942.71 and palladium rose 0.6% to 2,230 $.20.

Reporting by Eileen Soreng in Bengaluru; Editing by Shinjini Ganguli

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