Gold Falls as Yields Rise After Fed Meeting; Base Metals Slip

(Bloomberg) -- Gold declined as Treasury yields reached their highest in more than a year, continuing their climb after being briefly held back by the Federal Reserve’s dovish words. Most base metals also fell.

Fed Chair Jerome Powell and his colleagues remained dovish at the end of their meeting Wednesday, despite upgrading their U.S. economic outlook and mounting inflation worries in financial markets. While more Fed officials saw an earlier start to the withdrawal of ultra-easy monetary policy, Powell stressed this remains a minority view.

That message helped briefly stem the relentless rise of bond rates, which have been putting pressure on non-interest-bearing gold this year. The haven has made a weak start to 2021 as investors position for the end of the pandemic. A resurgent dollar, driven by expectations that U.S. growth will outpace gains in other countries, also hurt bullion and base metals including zinc on Thursday.

“The U.S. bond market was not particularly reassured by the Fed’s outlook,” Edward Meir, an analyst at ED&F Man Capital Markets, said in a note. “Clearly, markets are concerned that the Fed ‘could get it wrong’ in that inflation may not fall back as easily as it expects, especially on the factory-input side of things, where costs are soaring.”

Powell said price increases this year are likely to be transient and won’t mark progress toward the Fed’s long-term goals. He added that current monetary policy is appropriate and there’s no reason to push back against the surge in Treasury yields.

“Gold has, despite the outlook for higher inflation as the Fed allows the economy to run red hot, traded lower today as yields continue to climb,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. The Fed allowing inflation to rise should support a turnaround, “but first we need to scale $1,765 an ounce which has become a level that many are watching,” he said.

Meanwhile, holdings in exchange-traded funds have fallen in every session since mid-February for the longest decline on record. The selloff from ETFs, which helped gold touch its record price in August, has proved a major headwind for bullion this year.

Spot gold declined 0.7% to $1,733.14 an ounce by 2:36 p.m. in New York, after advancing 0.8% on Wednesday. Futures for April delivery advanced 0.3% to settle at $1,732.50 an ounce. Spot silver also fell while platinum was little changed.

Palladium rose as much as 7%, the most since May. It has risen about 12% over the past three sessions after MMC Norilsk Nickel PJSC, the world’s largest producer of the metal, lowered its 2021 production guidance for due to flooding at two of its Arctic mines.

Zinc slipped 1.2% to settle at $2,792 a metric ton, pacing declines among base metals traded in London. Copper inched lower, while tin advanced for a second straight day.

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