Gold futures finished lower on Wednesday, pressured by a climb in Treasury yields as investors remain focused on the Russia-Ukraine war.

Prices then saw volatile trading after minutes from the Federal Reserve’s March meeting, moving higher, then lower as the minutes offered insight into the central bank’s plans to shrink its balance sheet.

The Fed might increase a key U.S. interest rate by 1/2 percentage point increments at upcoming meetings if inflation remains high or gets even worse, according to the Fed minutes, which also indicated that the central bank may start reducing its $9 trillion balance sheet as early as May.

The minutes “delivered no surprises, and thus at least the early response in gold was muted,” Brien Lundin, editor of Gold Newsletter, told MarketWatch.

“While somewhat hawkish, with only the crisis in Ukraine keeping them from a half-point hike in the last meeting, the markets have already discounted a much more aggressive stance from the central bank,” he said. “This actually isn’t bearish for gold, as the record shows that the metal performs well once a Fed tightening cycle begins.”

Gold for June delivery
GC00,
+0.03%

GCM22,
+0.03%

fell by $4.40, or 0.2%, to settle at $1,923.10 an ounce on Comex ahead of the Fed minutes. It moved up to around $1,926 immediately after the minutes, in electronic trading, then fell to $1,921.

“The ongoing war in Ukraine is providing a tailwind for bullion by keeping the market on edge as the situation evolves,” said Thomas Westwater, analyst at DailyFX, in emailed commentary, before the Fed minutes.

“The Western allies continue to roll out sanctions targeting Russia, which has the unfortunate side effect of complicating the global flow of goods and services,” he said. “That could keep inflation and market volatility elevated, both of which are supportive elements for the yellow metal.”

At the same time, “higher inflation is stoking an increasingly aggressive response from central banks,” with the Federal Reserve is set to hike its benchmark rate by 50 basis points in May,” said Westwater. Rising rates “disadvantage gold, a non-interest-bearing asset.”

So “the looming question is whether central banks will be able to get a handle on inflation,” he said.

“The looming question is whether central banks will be able to get a handle on inflation.”


— Thomas Westwater, DailyFX

The yellow metal ended slightly lower, falling 0.3%, on Tuesday as the 10-year Treasury yield jumped to a nearly two-year high after Fed Gov. Lael Brainard signaled the Fed would move to quickly unwind its balance sheet while rapidly raising interest rates.

Yields continued to rise Wednesday, with the 10-year rate
TMUBMUSD10Y,
2.623%

touching highs above 2.65% . The dollar has also gained ground, which can also be a negative for commodities priced in the unit as it makes them more expensive to users of other currencies.

“Bullion escaped with very mild injuries considering the storm in bonds, with buyers defending the $1,915 region like a stronghold. The Fed repricing has not inflicted any serious damage on gold so far, although the real test will come once there’s a ceasefire in Ukraine and haven demand cools off,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note.

Investors continue to monitor developments in Ukraine. The U.S., along with other Group of Seven countries and the European Union, announced new sanctions on Russia over its invasion of Ukraine, after evidence of alleged war crimes emerged as Russian forces pulled back from the area around Kyiv.

Other metals settled lower on Comex, with May silver
SIK22,
+0.07%

SI00,
+0.07%

down 0.3%, to $24.458 an ounce and May copper
HGK22,
-1.42%

losing 1.2% at $4.738 a pound. July platinum
PLN22,
-1.75%

shed 2.1% to $953.10 an ounce and June palladium
PAM22,
-1.83%

settled at $2,184.70 an ounce, down 2.3%.



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