Gold futures settled lower on Wednesday and marked a fresh nadir for 2018 as overall strength in dollar eroded appetite for the precious yellow metal.
“The near-term path of least resistance remains lower right now as dollar strength remains one of the most dominant trends across asset classes,” said Tyler Richey, co-editor of the Sevens Report.
“Real interest rates have not materially moved recently,” he said. Still, “if risk off money flows due to trade war fears prop up Treasury prices (pressuring yields), and inflation readings hold steady, gold will likely catch a bid and at least make a run back towards $1,300, as real rate expectations would decline.”
The dollar, as gauged by the ICE U.S. Dollar Index DXY, -0.01% a measure of the buck against a half-dozen currencies, was down 0.1% Wednesday, but has advanced nearly 1.1% in June, according to FactSet data. The 10-year Treasury note yield TMUBMUSD10Y, +0.76% edged up by 2.3 basis points to 2.915%.
A strengthening dollar weighs on commodities pegged to the monetary unit, because it makes those assets more expensive for buyers using other currencies. Rising bond yields can also dull the luster of gold, which offers no yield.
Gains in the greenback have offset demand for gold bullion amid escalating trade tensions between China and the U.S. that should normally lure bidders to the asset typically billed as a haven in times of uncertainty.
On Tuesday, markets experienced a bout of flight-to-safety trading after President Donald Trump asked U.S. Trade Representative Robert Lighthizer late Monday to identify $200 billion more in Chinese products that could be subject to tariffs of 10%, ratcheting up concerns that a trade war may erupt, roiling global economies.
Moreover, the Federal Reserve’s plan to raise interest rates twice more in 2018, after lifting benchmark rates by a quarter of a percentage point last week, have helped to underpin some upward momentum in the U.S. dollar and has driven interest rates on benchmark 10-year Treasury note higher.