Title: Gold dips as bond yields rise before Fed meeting

May 2, 2022, 01:52 AM ET

By: AnalysisWatch

Gold prices collapsed on Monday as higher U.S. government bond yields pressured demand for gold with yields ahead of a widely expected major interest rate hike by the Federal Reserve to curb rising inflationary pressures.

Spot gold fell 0.4% to $1,888.56 per ounce as of 10:41 PM ET. U.S. gold futures fell 1.3% to $1,886.90 an ounce.

The market is concerned that the Federal Reserve could be quite aggressive and price in a 50 basis point hike, and by July it could be 75 basis points, said Stephen Innes, managing partner at SPI Asset Management.

The Federal Open Market Committee will begin its two-day interest rate meeting on May 3 and announce its decision the next day.

Fed policymakers are expected to pursue a series of aggressive rate hikes at least through the summer to tackle rapid inflation and rising labor costs, even as two reports released Friday showed cautious signs that both developments may have peaked.

The Fed is still behind and has been constantly trying to keep up with those expectations, so there's a good chance it will keep an eye on current inflation metrics and "continue to beat the hawkish drum," Innes said.

Ten-year U.S. Treasury bond yields rose to new multi-year highs, depressing demand for gold.

Higher short-term U.S. interest rates and bond yields tend to escalate the opportunity cost of owning gold bullion, which does not yield a return. Gold bullion is also thought of to be a safe store of value in times of economic and political crisis.

About 100 civilians evacuated from the destroyed Azovstal steel plant in Mariupol were expected to arrive in a Ukrainian-held town on Monday, Ukrainian President Volodymyr Zelenskiy said after U.S. Speaker Nancy Pelosi made a surprise visit to Kiev.

Spot silver was down 0.6% to $22.60 per ounce, platinum was down 0.5% to $926.58, and palladium was down 2.2% to $2,268.48.