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Gold futures fell sharply on Tuesday to mark their lowest finish in nearly two weeks as investors assessed the latest U.S. data on inflation and looked to the Federal Reserve which is expected to raise benchmark interest rates this week.
The recent sharp rise in U.S. Treasury yields has “dimmed the appeal of gold ahead of what could well be a hawkish statement” and press conference from the Federal Reserve on Wednesday, said Michael Hewson, chief market analyst at CMC Markets UK, in a Tuesday note.
The central bank is expected to announce on Wednesday the first increase in fed fund futures rates since 2018 as policy makers attempt to combat U.S. inflation at a 40-year-high, even though Russia’s invasion of Ukraine could hurt global economic growth.
Russia and Ukraine also continued talks to end their hostilities in Eastern Europe, after a fourth round of negotiations on Monday ended without any clear agreement.
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Gold had been drawing safe-haven bids since the start of the conflict between Moscow and Kyiv on Feb. 24 but it has begun to stage a substantial retrenchment ahead of the Fed decision on Wednesday.
April gold GCJ22, -0.41% GC00, -0.37% fell $31.10, or 1.6%, to settle at $1,929.70 an ounce, the lowest most-active contract finish since March 2, according to FactSet data.
May silver SIK22, -0.67% also fell by 14 cents, or nearly 0.6%, to $25.158 an ounce.
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Gold prices continued to trade lower after data Tuesday showed that wholesale prices rose a sharp 0.8% in February, but came in below the Wall Street economists forecast of a 0.9% gain. Separately, the New York Fed’s Empire State business conditions index plunged 14.9 points to negative 11.8 in March, the regional Fed bank said Tuesday.
Meanwhile, the Fed is widely expected to raise interest rates by 25 basis points on Wednesday, commencing what is expected to be a series of hikes to borrowing costs to quell inflation.
The “risk-reward of holding bullion,” with the Fed looking to hike rates to cool inflation, has taken some of the steam out of gold, said Stephen Innes, managing partner at SPI Asset Management, in a Tuesday note.
The prospective hikes can spark selling in Treasurys, pushing yields higher and that can raise the opportunity cost for owning nonyielding gold versus government debt, wrote Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a daily note.
Ozkardeskaya said, however, that “successive failures to find a diplomatic solution in the Ukrainian war could overcome the rising U.S. yields and throw a floor under the decline of the price of an ounce near the $1,900 mark.”
The 10-year Treasury note TMUBMUSD10Y, 2.829% yields around 2.13%, down slightly from nearly 2.14% for the benchmark note Monday, which was its highest level since the summer of 2019.
Among other Comex metals, May copper HGK22, +0.18% lost 0.2% to $4.513 a pound. April platinum PLJ22, +0.35% dropped 4.7% to $1,002.50 an ounce and June palladium PAM22, +0.49% settled at $2,412 an ounce, down 0.2%.