Global stock markets and commodities like oil were under pressure today as the worsening Covid outbreak in China fueled fears of a deeper 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 also come under pressure in recent days.
Gold prices were under pressure for the sixth straight day in Indian markets. As of noon, gold futures on MCX were down 0.75% today at ₹51,874 for 10 grams while silver futures fell 1.3% to ₹65,745 per kg. In six days, gold has so far fallen by around ₹1,800 for 10 grams.
In international markets, gold languished near two-week lows amid a rising US dollar and firm bond yields. Spot gold fell 0.1% to $1,928.08 an ounce, the lowest since April 7.
Analysts say that despite safe-haven demand from inflation and Ukraine concerns, a strong US dollar and firm US bond yields are putting pressure on gold. The Dollar Index rose slightly today to 101.265, making gold less attractive to buyers holding other currencies.
Treasuries ended last week’s rout that rocked markets while the dollar extended its advance as investors opted for safe havens.
“COMEX gold is trading about 0.5% lower near $1925 an ounce, weighed down by US dollar strength amid the Fed’s hawkish stance and some profit taking by investors in ETFs,” said Ravindra Rao, head of commodities research at Kotak Securities.
However, gold’s losses are capped by worries about the health of the Chinese economy, rising tensions between Russia and Ukraine and inflation fears, analysts said.
“Gold corrected after failing to hold near $2,000 an ounce and could remain under pressure unless we see some stability across commodities,” Kotak’s Ravindra Rao 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 safe-haven bids.
“Markets are now pricing in 50 basis point hikes at each of the next four Fed meetings. Markets expect the fed funds rate to be 2.75-3% by the end of 2022, up from 0.25-0.50% currently. Expectations of aggressive tightening to rein in inflation are making investors nervous and weighing on global risk sentiment,” IFA Global said in a note.
Gold traders will be watching key US economic data such as GDP figures and weekly jobless claims, both due Thursday.
Gold is very sensitive to rising US short-term interest rates and rising yields, which increase the opportunity cost of holding non-performing bullion. It is, however, considered a safe store of value during economic and political crises.
Strength in the U.S. dollar and bond yields is weighing on gold amid signs of more rapid Federal Reserve policy tightening, says Rahul Kalantri, vice president of commodities, Mehta Equities Ltd.
On the other hand, he says, the higher global inflation outlook and slower economic growth outlook due to the Russia-Ukraine crisis and higher inflation are supporting precious metals at lower levels. Gold is considered a safe store of value during economic and political crises.