Gold futures slumped in the middle of the trading week, snapping a four-session win streak. The broader commodities market is ostensibly taking a breather on Wednesday following meteoric gains this month. But is the pullback in gold prices permanent, or is this a blip on the radar before another rally?
April gold futures tumbled $40.10, or 1.96%, to $2,003.20 per ounce at 12:51 GMT on Wednesday on the COMEX division of the New York Mercantile Exchange. Gold has surged more than 3% this week, lifting its year-to-date rally to nearly 10%.
Silver, the sister commodity to gold, is also paring some of its enormous gains. May silver futures shed $0.405, or 1.51%, to $26.515 an ounce. The white metal is also up 4% this week, bringing its 2022 rally to more than 13%.
While global financial markets are still monitoring the situation in Ukraine, investors are apparently taking profits after gold homed in on an all-time high.
“So, gold might be edging away from its record highs and stocks firmer, but sentiment can turn negative very quickly,” wrote Fawad Razaqzada, market analyst at ThinkMarkets. “Volatile market conditions are not going anywhere until Putin ends the invasion of Ukraine.”
With the Federal Reserve’s Federal Open Market Committee (FOMC) policy meeting scheduled for next week, traders are focusing on monetary tightening once again. It is widely expected that the central bank will pull the trigger on a 25-basis-point hike to its benchmark fed funds rate, while markets find it unlikely that a 50-basis-point increase would take place.
The European Central Bank (ECB) is poised to deliver a policy update on Thursday. The institution is expected to postpone any quantitative tightening efforts until later in the year, despite inflationary pressures intensifying.
Gold is typically sensitive to a rising-rate environment because it lifts the opportunity cost of holding non-yielding bullion.
The US Dollar Index (DXY), which gauges the greenback against a basket of currencies, also paused its rally on Wednesday. The index fell 0.65% to 98.42, from an opening of 99.06. A weaker buck is good for dollar-denominated assets because it makes it cheaper for foreign investors to purchase.
Bonds were mostly in the green on Wednesday, with the benchmark 10-year Treasury yield up 0.035% to 1.906%. The one-year bill slipped 0.025% to 1.111%, while the 30-year bond edged up 0.02% to 2.263%.
In other metal markets, April copper futures declined $0.1185, or 2.55%, to $4.59 per pound. April platinum futures shed $0.095, or 0.82%, to $1,144.70 an ounce. May palladium futures soared $33.50, or 1.13%, to $3,002.00 per ounce.