Commodity Market: Gold heads for third week of losses as rate hike expectations underpin bond yields, US Dollar

Spot Gold retreated on Friday and headed for its third consecutive week of losses, after a series of strong macro data revived expectations of further policy tightening by the Federal Reserve.

Meanwhile, the US Dollar scaled a fresh six-week high, additionally pressuring Gold prices.

Several Federal Reserve officials said this week the bank’s monetary policy would need to remain tight in order to drive inflation back down toward Fed’s 2% target.

The latest string of macro data showed US producer prices had risen at a monthly pace of 0.7% in January, or the most since June 2022 and faster than a consensus of estimates. Goods prices rose 1.2% in January, also the most since June 2022, driven by a 6.2% increase in gasoline cost.

Separately, the number of Americans who filed for unemployment assistance unexpectedly dropped to 194,000 in the week ended February 11th from the previous week’s revised level of 195,000. The data indicated US labor market still remained tight due in part to reduced labor force participation. As a result, employers may be forced to increase wages to lure and retain staff, which could further heighten inflationary pressure.

The futures market is now pricing in a peak in US interest rates at 5.28% in July and levels above 5% until the end of 2023.

“The incoming data have not changed my view that we will need to bring the fed funds rate above 5% and hold it there for some time,” Cleveland Federal Reserve President Loretta Mester said.

Rising expectations that the US central bank will need to raise interest rates further have driven US Treasury yields higher. 10-year Treasury yield went up 5.1 basis points to 3.894%, the highest level since November 10th.

Despite Gold’s role as an inflation hedge, rising interest rates tend to weigh on the metal’s appeal, as they are associated with a higher opportunity cost of holding Gold, which does not pay any interest.

As of 10:10 GMT on Friday Spot Gold was losing 0.67% to trade at $1,824.14 per troy ounce. Earlier today, the precious metal went down as low as $1,818.97 per troy ounce, which has been its weakest price level since December 30th 2022 ($1,813.40 per troy ounce).

Gold has retreated 2.26% so far this week, following a 0.02% dip in the previous week.

Gold Futures for delivery in April were losing 1.03% on the day to trade at $1,832.70 per troy ounce, while Silver Futures for delivery in March were down 2.26% to trade at $21.220 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging up 0.36% to 104.472 on Friday. Earlier in the session, the DXY went up as high as 104.541, which has been its strongest level since January 6th (105.631).