Gold Drops as Dollar Strengthens, Traders Focus on Bond Auctions

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Gold Drops as Dollar Strengthens, Traders Focus on Bond Auctions

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Ranjeetha Pakiam
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(Bloomberg) -- Gold declined as the dollar remained resilient and 10-year Treasury yields held near the highest level in more than a year, weighing on the precious metal which doesn’t offer interest.

Investors will turn their attention to a heavy slate of bond auctions focused in maturities that have gotten pummeled amid a brightening outlook for growth and inflation. Federal Reserve Chairman Jerome Powell reiterated in a Wall Street Journal editorial that the central bank will continue to provide aid to the economy “for as long as it takes” as the recovery is far from complete. Richmond Fed President Thomas Barkin said in a Bloomberg TV interview Sunday that there is no sign yet of unwanted inflation pressures.

Bullion has dropped about 8% this year with investors rotating out of havens into riskier assets, although its role as a hedge against inflation has helped give some support to prices. On Friday, the Fed said it’ll let a significant capital break for big banks expire at month’s end. That saw the dollar and bond yields tick higher, with the latter holding near its highest levels in about 14 months on Monday.

“The opportunity cost of being in a reflationary environment seems to be holding gold back,” said Chris Weston, head of research at Pepperstone Group Ltd. “The appeal of gold as a portfolio hedge is not there either, with the U.S. dollar a seemingly better play.”

Spot gold fell 0.3% to $1,740.79 an ounce by 11:49 a.m. in Singapore, after rising 0.5% on Friday. Silver, platinum and palladium all retreated. The Bloomberg Dollar Spot Index advanced a third day.

Meanwhile, Powell and Treasury Secretary Janet Yellen are expected to make their first joint appearance before the U.S. House Financial Services committee to testify on Fed and Treasury pandemic policies Tuesday.

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