Gold falls as US yields rise and dollar strengthens
Gold prices dropped as rising US Treasury yields and a stronger dollar outweighed safe-haven demand amid escalating US-Iran tensions
Global gold prices declined overnight as rising US Treasury yields and a stronger US dollar overshadowed demand for safe-haven assets, even as tensions escalated in the conflict involving the United States, Israel and Iran.
Reuters reported that gold reversed course on Thursday (March 5), erasing earlier gains as higher US Treasury yields and a firmer dollar pressured prices. At the same time, growing concerns that the intensifying conflict in the Middle East could fuel inflation also weighed on market sentiment.
Spot gold fell 1.2% to $5,076.59 per ounce as of 1:32pm US Eastern Time (18:32 GMT), after earlier rising to as high as $5,194.59. US gold futures for April delivery dropped 1.1% to $5,078.70.
“The market is watching higher oil prices and the risk of elevated inflation, while rising Treasury yields typically do not favour gold,” said Bart Melek, global head of commodity strategy at TD Securities.
The US-Israel offensive against Iran entered its sixth day on Thursday, with residents reporting intensified bombardment. Tehran announced it would retaliate after the United States attacked an Iranian vessel located far from the main conflict zone.
The escalation has heightened concerns over energy supply, supporting oil prices, fuelling inflation worries, and reducing the likelihood of interest-rate cuts.
Gold is often viewed as a long-term hedge against inflation, but it tends to perform better when interest rates decline.
The precious metal, which reached a record high of $5,594.82 on January 29, rose slightly above $5,400 on Monday following the start of US-Israel air operations that boosted safe-haven demand. However, it later weakened as the US dollar also attracted safe-haven flows.
The US dollar index (DXY) rose 0.5%, making dollar-priced gold more expensive for overseas buyers. Meanwhile, the yield on the 10-year US Treasury note climbed to its highest level in three weeks, increasing the opportunity cost of holding non-yielding assets such as gold.
Nevertheless, Melek said gold continues to have underlying support, noting that “at some point we will begin to see evidence of significantly larger deficits in the United States … and enormous uncertainty.”
US data released on Thursday showed that initial jobless claims were unchanged last week, while layoffs declined sharply in February. The Federal Reserve said on Wednesday that economic activity had increased slightly, prices continued to rise, and employment levels remained broadly stable in recent weeks.
Markets expect the Fed to keep interest rates unchanged at its policy meeting on March 18. Investors are closely watching the US February employment report due on Friday for further signals.
Other precious metals also declined. Spot silver fell 1.8% to $81.91 per ounce, platinum dropped 1.1% to $2,125.10, and palladium slipped 2.4% to $1,634.15.
Morning update (March 6)
Bloomberg reported that spot gold edged up 0.2% to $5,093.63 per ounce as of 7:24am Singapore time. Silver rose 0.3% to $82.47, while platinum and palladium also posted gains.
Gold steadied after dropping more than 1% previously, pressured by the stronger US dollar as the conflict in the Middle East showed no sign of easing.
Prices hovered around $5,090 per ounce in Friday morning trading. The US dollar index strengthened 0.4% on Thursday, while US government bond prices fell for a fourth consecutive day, pushing yields to their highest levels in several weeks.
This occurred as the war involving the United States and Israel against Iran drove oil prices higher and prompted investors to scale back expectations that the Federal Reserve would cut interest rates. Typically, a stronger dollar and higher borrowing costs weigh on gold prices.
Global markets remain tense as the conflict entered its seventh day. On Thursday evening, Iran launched missile and drone strikes across the Persian Gulf region, targeting an oil refinery in Bahrain. Meanwhile, Israel continued air strikes on Tehran, and the United States suspended operations at its embassy in Kuwait.
