(Bloomberg) — Gold declined as U.S. bond yields climbed to a two-year high amid increasing bets the Federal Reserve will raise interest rates in March.
Yields on 10-year Treasuries hit the highest level since January 2020 as Fed officials say they may need to implement hikes faster than expected to curb the hottest inflation since the 1980s.
Meanwhile, the Bank of Japan kept its negative interest rate, bond yield target and asset purchases unchanged at the end of its meeting Tuesday, a widely forecast decision given an overall inflation pulse that remains far weaker than in the U.S. and other major economies.
Still, with energy costs surging, the bank nudged up its forecasts for prices in the year starting in April and the following year, and changed its view of the inflation risks they face. Brent crude extended gains to the highest level in seven years as geopolitical tensions stirred in the Middle East, adding to global inflation concerns.
Gold dropped for the first time in three years in 2021 amid the prospects of monetary policy tightening and the deployment of vaccines. While bullion’s traditional role as an inflation hedge and the uncertainty over omicron’s impact has supported demand for the haven asset, gold may trade down toward $1,800 in the short term, said Ole Hansen, head of commodity strategy at Saxo Bank A/S.
Longer term, the prospects for gold look positive, he said.
“The market has by now fully priced in four rate hikes this year, some even speculating they might do 50 basis points in March,” Hansen said. “These developments raise the risk of the Fed hurting economic growth, and that combined with weakness in stocks are likely to support gold.”
Spot gold slipped 0.3% to $1,813.73 an ounce by 11:56 a.m. in London. The Bloomberg Dollar Spot Index climbed 0.2%. Silver and platinum dropped, while palladium advanced.
