Global equity markets and commodities like oil were under pressure today as China’s worsening Covid outbreak fueled fears of a bigger slowdown in the world’s second-largest economy. The MSCI Asia-Pacific gauge fell for the sixth session in seven with sharp declines in Hong Kong and China. However, gold, which is considered a safe-haven asset, has been under pressure too in recent days.
Gold prices were under pressure for the sixth straight day in Indian markets. In noon trades gold futures on MCX were today down 0.75% to ₹51,874 per 10 gram while silver futures slumped 1.3% to ₹65,745 per kg. In six days, gold has so far fallen about ₹1,800 per 10 grams.
In international markets, gold languished near two-week lows amid elevated US dollar and firm bond yields. Spot gold was down 0.1% at $1,928.08 per ounce, the lowest since April 7.
Analysts say that despite the safe-haven demand from inflation and Ukraine concerns, a strong US dollar and firm US bond yields is putting pressure on gold. The dollar index today edged higher to 101.265, making gold less attractive for buyers holding other currencies.
Treasuries snapped the route of the past week that roiled markets while the dollar extended an advance as investors opted for safe havens.
“COMEX gold trades about 0.5% lower near $1925/oz weighed down by firmness in US dollar amid Fed’s hawkish stance and some profit taking by ETF investors,” says Ravindra Rao, Head Commodity Research at Kotak Securities.
However, losses in gold is being capped by concerns about the health of the Chinese economy, increasing Russia-Ukraine tensions and inflation concerns, say analysts.
“Gold has corrected after failing to sustain near $2000/oz level and may remain pressurized unless we see some stability across commodities,” Ravindra Rao of Kotak said.
Aggressive Fed tightening, COVID-related lockdowns in China, and the Ukraine-Russia war are the three main themes haunting global markets at this point and the dollar and Treasuries gained on haven bids.
“Markets are now pricing in 50bps hikes at each of the next four Fed meetings. Markets are expecting Fed funds rate to be at 2.75-3% by end of 2022 from 0.25-0.50% currently. Expectations of aggressive tightening to clamp down inflation is making investors nervous and is weighing on overall risk sentiment,” IFA Global said in a note.
Gold traders will be watching for key US economic data like GDP numbers and weekly jobless claims, both due on Thursday.
Gold is highly sensitive to rising US short-term interest rates and higher yields, which increase the opportunity cost of holding non-yielding bullion. It is, however, seen as a safe store of value during economic and political crises.
Firm US dollar and bond yields are weighing on gold amid signs of faster policy tightening by the Federal Reserve, says Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
On the other hand, he says, higher global inflation prospects and slower economic growth outlook due to Russia-Ukraine crisis and higher inflation is supporting precious metals at lower levels. Gold is seen as a safe store of value during economic and political crises.