Title: Gold slips as dollar holds firm on safe-haven flows

Apr 05, 2022 01:45AM ET

By: AnalysisWatch

Gold weakened on Tuesday as the U.S. dollar held on to solid ground due to the growing prospect of further sanctions against Russia and a possible larger interest rate hike by the Federal Reserve to curb inflation.

Spot gold was down 0.2% to $1,928.52 an ounce by 12:57 AM ET. U.S. gold futures fell 0.1% to $1,931.70.

"The more liquid something is, the less volatile it is." And if markets are running away from risk, then the dollar becomes a natural haven, if only because it is simply the most liquid financial instrument that exists, "said Ilya Spivak, currency strategist at DailyFX.

"Now those returns are still negative in real terms once we discount the break even. And I think that's why gold hasn't fallen significantly, but if this kind of repricing by the hawkish Fed continues and we actually see positive real rates, I think gold is going to look pretty unattractive.

The dollar index was little changed after three consecutive sessions of gains as talk of further sanctions against Moscow increased. A stronger dollar makes gold less attractive to holders of other currencies.

The United States and Europe were planning new sanctions to punish Moscow for killing civilians in Ukraine, and President Volodymyr Zelensky warned that more deaths were likely to be revealed in areas occupied by Russian invaders.

On Monday, two-year Treasury yields in the United States reached their highest level since early 2019, while 10-year yields rose slightly. Higher yields raise the opportunity cost of holding defaulted securities.

"In these uncertain times, gold continues to have support as a critical portfolio hedge that will shine in the most challenging period as inflationary pressures remain strong but growth slows," said Stephen Innes, managing partner at SPI Asset Management.

Spot silver fell 0.2% to $24.45 per ounce, while platinum fell 0.5% to $981.88 and palladium fell 0.5% to $2,286.63.