Gold loses to the dollar – Kommersant

Quotes of precious metals on the world market returned to the levels of two months ago. The leaders of the decline were silver and gold, which lost 5-11% in price in less than three weeks. This is largely due to the fear of a further increase in the Fed’s rate, as well as confidence that the US public debt will be increased.

The cost of silver on Tuesday, May 23, updated a two-month low. During the day, the price of the precious metal fell to $23.11 per troy ounce, down 2.3% from the previous day’s close and the lowest level since March 29, according to Investing.com. A confident decline in silver prices continues for the third week in a row, and during this time the metal has lost more than 11% in price. To the values ​​of two months ago, the price of gold also fell on Tuesday, to $ 1954 per ounce, which is 0.8% lower than on Monday and more than 5% lower than the maximum set in early May.

The decline in prices for gold and silver is associated with rather tough statements by the Fed representatives.

On Monday, St. Louis Fed chief James Bullard noted that the financial regulator may have to raise its benchmark interest rate by another 0.5 percentage points this year. This is facilitated by the consensus among the Fed that inflation remains “unacceptably high” (5% in April), and the labor market feels confident. Thus, as noted by Anna Pigulnova, Senior Analyst for Commodity Markets at SberCIB Investment Research, the Fed, on the one hand, has a need, on the other hand, there is an opportunity to maintain a tight monetary policy. “If at the beginning of May it was expected that the rate would drop to 4.5% by the end of this year, a threefold decrease of 25 basis points starting from September, now the probability that there will be either two cuts, or even one (up to 4 .75 bp and 5%, respectively),” notes Ms. Pigulnova.

The prospects for maintaining a tight monetary policy support the US dollar, which negatively affects the quotes of gold and silver.

On Tuesday, the DXY index (the dollar against the six leading currencies) rose to 103.65 points, up 0.4% from Monday and 2.6% from three weeks ago. In addition to this, the yields of treasury bonds are actively growing in the US market. The 10-year UST yield reached its highest since March 10 at 3.763% per annum on Tuesday, up more than 4 bp. p. above the values ​​of Monday and 37 bp. n. above the value of the beginning of the month. “Gold competes with other defensive assets — dollar deposits and US Treasury bonds. Therefore, the stronger the position of the dollar and the higher interest rates, the lower the demand for gold,” explains Mikhail Vasilyev, chief analyst at Sovcombank.

The strengthening of the dollar and the growth of yields on US government bonds are also facilitated by investors’ expectations of raising the ceiling of the US government debt. Despite the disagreements between Democrats and Republicans, none of the parties is interested in bringing the matter to a default, so investors are convinced of a positive solution to the issue. “As soon as the congressmen agree and raise the ceiling on the national debt, the US Treasury will begin to quickly and heavily borrow in the debt market. This will lead to the strengthening of the dollar, pressure on government bond prices and lower asset prices,” notes Mikhail Vasiliev.

Under the current conditions, the decline in the cost of gold and silver may continue, analysts say. Mikhail Vasiliev does not exclude the growth of the DXY index to 109 points, which could lead to a decrease in the cost of gold in the range of $1900-1950 per ounce, silver – in the range of $22.8-23.4. “Recovery of quotations is possible in the event of an increase in investors’ appetite for protective assets against the backdrop of renewed recession risks, or in the context of softening the Fed’s rhetoric,” notes Anna Pigulnova. According to Valery Emelyanov, an expert on the stock market at BCS World of Investments, “only some new negative can help gold grow in price.” We need “some kind of sudden shock, say, a parallel parade of defaults in Europe or China,” the expert believes.

Vitaly Gaidaev