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Metals Stocks: Gold books worst day in a week as traders pick dollar as haven for Fed rate hike cycle

Gold futures fell on Monday, as investors chose the greenback over the yellow metal as the safe place to hide while the Federal Reserve ratchets up interest rates.

Futures
GC00,
-1.06%

GCM22,
-1.06%

fell 1%, or $19.20, to trade on Monday at $1,864 an ounce. Silver prices also were lower,
SI00,
-1.73%

with the July contract
SIN22,
-1.73%

down 1.6% to $22 an ounce.

Jitters over the U.S. central bank’s plans to aggressively tighten financial conditions this year to combat inflation at a 40-year high has led to sharp volatility in stocks
SPX,
-2.05%
,
bonds and other financial assets, while sending investors flocking to safe-haven assets like the U.S. dollar, gold and other government debt.

In response, gold futures are up 2.5% this year, compared to the 8.2% rise for the U.S. dollar index
DXY,
-0.20%
.
The benchmark 10-year yield
TMUBMUSD10Y,
3.083%

also has surged, briefly topping 3.20% on Monday before pulling back, but still nearing peak levels in 2018, or before America’s last economic recession.

“The dollar is proving the haven asset of choice at a time of continued falls on equity markets in the wake of the Federal Reserve’s trajectory of interest rate hikes and now concerns over China’s economic growth due to the ongoing COVID-related lockdown,” said Rupert Rolwing, market analyst at Kinesis Money.

Even when stocks tumble, gold’s appeal as a non-interest bearing asset can be dulled by rising Treasury yields, while a strong dollar can erode the attractiveness of commodities priced in the unit, making them more expensive to users of other currencies.

“As is often the case with the U.S. Dollar Index and gold, one’s success has been the other’s failure,” Tim Hayes, chief global investment strategist, wrote in a client note Friday, as part of his rationale for downgrading the precious metal and upgrading the greenback.

“While the Dollar Index has now broken through its highs of 2016 and 2020 on its way to levels last seen in 2002, gold tested its own 2020 high on March 8 before dropping -8%.”

Traders are looking ahead of Wednesday’s release of the consumer price index, which could show a peak in inflation. Friday’s data showing a 428,000 gain in nonfarm payrolls and an unchanged unemployment of 3.6% did little to change the market’s outlook of steep Fed rate hikes.

Atlanta Fed President Raphael Bostic on Monday said the central bank’s plan for hiking rates by half of a percentage point at coming monetary-policy meetings already would be pretty aggressive moves, in an interview with Bloomberg.

In other Comex metals trading, July copper
HGN22,
-1.31%

fell 1.6% to $4.20 a pound. July platinum
PLN22,
-1.26%

 declined by 1.5% to $941.90 an ounce and June palladium
PAM22,
+3.72%

rose 4.1% to $2,106.50 an ounce.

Read: Friday’s data showing a 428,000 gain in nonfarm payrolls and an unchanged unemployment of 3.6% did little to change the market’s outlook of steep Fed rate hikes.

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