This post was originally published on this site
Gold and silver prices declined on Wednesday as U.S. Treasury yields edged higher in the wake of U.S. data showing wholesale prices rose more than the market expected in September, feeding expectations that the Federal Reserve will continue to aggressively raise interest rates.
Price action
-
Gold for December
GCZ22,
-0.63% GC00,
-0.63%
delivery shed $6.60, or 0.4%, to $1,679.40 per ounce on Comex. -
Silver for December
SIZ22,
-2.91%
delivery declined 34.2 cents, or 1.8%, to $19.145 per ounce. -
December palladium futures
PAZ22,
-1.81%
lost $29.40, or 1.4%, to $2,121 per ounce, while platinum futures
PLF23,
-2.17%
for January delivery fell $13.20, or 1.5%, to $885.90 per ounce. -
Copper for December delivery
HGZ22,
-1.31%
fell 4 cents, or 1.2%, to $3.4225 per pound.
What’s happening
U.S. wholesale prices rose 0.4% in September to mark the first increase in three months. Economists polled by The Wall Street Journal had forecast a 0.2% gain.
Wednesday’s stronger-than-expected reading on producer prices “validates” the Fed’s “aggressive pace of rate hikes, even if those measures eventually cause damage to the overall economy,” said Ryan Belanger, founder and managing principal, at wealth management firm Claro Advisors, in emailed commentary.
“The rise in producer prices in September suggests that Thursday’s Consumer Price Index will likely also remain elevated, as the prices consumers pay for goods in the future are derived from the prices that producers pay today,” he said.
Higher interest rates can boost the dollar and dull demand for dollar-denominated commodities. Rising yields on government debt can also be a headwind for gold as it raises the opportunity cost of holding nonyielding assets.
The ICE U.S. Dollar Index
DXY,
a gauge of the dollar’s strength against a basket of rival currencies, was up 0.1% at 113.38. The yield on the 10-year Treasury note
TMUBMUSD10Y,
rose 1.8 basis points to 3.92% in Wednesday dealings.
Ole Hansen, chief commodity strategist at Saxobank, said in a note Wednesday that fluctuations in Treasury yields and the value of the dollar have taken gold and other commodities on a “rollercoaster ride” in recent weeks.
“Commodity markets continue to attract a great deal of directional inspiration from the price action across financial markets,” he said.
However, there’s still reason to be long gold, Hansen said, citing the risk of a Fed policy “mistake” that could provoke a reversal in stocks, bonds and the dollar.
“Looking ahead, we see no reason to change our long-term bullish view on gold with support potentially coming from the risk of a policy mistake sending US economic growth, the dollar and bond yields lower,” he said.
