Gold futures fell sharply on Monday, posting a back-to-back loss, as investors watched the third week of the invasion of Ukraine by Russia and awaited what is expected to be the first rate increase by the Federal Reserve in four years.
“It looks like precious metals as well as other commodities have got past their initial shock at Russia’s invasion,” Adrian Ash, director of research at BullionVault, told MarketWatch on Monday. The rally in most Western stock markets agrees that despite the “horror of Putin’s campaign, this isn’t [World War 3]. Not yet.”
fell $24.20, or 1.2%, to settle at $1,960.80 an ounce, the lowest finish since March 3. On Friday, prices based on the most-active contract ended lower, but posted a weekly gain of 0.9%, FactSet data show. May silver
lost 86 cents, or 3.3%, to $25.298 an ounce.
The decline for bullion comes as some investors bought stocks rather than assets perceived as havens such as gold and U.S. Treasurys, with the 10-year note
yielding around 2.12%, near its highest since July of 2019.
U.S. benchmark stock indexes gave up early gains as gold futures settled for the session Monday, but that followed gains for most European stock indexes.
“For all the chatter about safe-haven demand, speculation in Comex derivatives was the driver of last week’s price spike in gold,” said Ash.
There’s also a “heavy and growing undertow from profit-taking among physical investors and jewelry owners,” he said. “Gold in both China and India is now trading at a discount to London. That means new imports are unwanted, showing weak domestic demand versus supply.”
Ukraine and Russian officials held a fourth round of talks, which gave a modest lift to risk appetite in earlier dealings, even after Russian forces, over the weekend, laid siege to a number of other Ukrainian cities.
A Russian airstrike on a Ukrainian military training center near Ukraine’s border with Poland, a NATO member, came after Moscow warned the West that it would consider arms deliveries to Ukraine as legitimate targets.
An adviser to Ukraine’s president said Monday afternoon that talks between Kyiv and Moscow had paused and would resume Tuesday, according to The Wall Street Journal.
The Eastern European conflict comes as the Fed is widely expected to deliver a quarter-point increase to the benchmark fed-funds rate when it concludes a two-day policy meeting on Wednesday.
The Fed’s expected rate increase “might give speculative traders pause if they’re looking at gold this week, but no U.S. central bank has ever been this far behind inflation,” said Ash.
“Whatever happens next between Russia and Ukraine, high energy prices and agricultural shortages look set to worsen,” he said. “That’s likely to support precious metals as a store of value, most especially if the stock market resumes its drop.”
Investors will be focused on Fed officials’ outlook for inflation and the view of global health against the backdrop of military conflict that has exacerbated pricing pressures globally and raised concerns of a world-wide economic slowdown.
Naeem Aslam, chief market analyst at AvaTrade said in a note that the war in Ukraine “keeps on pushing traders toward havens, and they believe that the Fed’s monetary policy under the current situation doesn’t hold much value.
“It is highly likely that gold price, which may surge until the event, would see some retracement as the dollar index is bound to move higher, a significant denominator for the gold price,” Aslam wrote.
In other Comex metals trading Monday, May copper
shed 2.2% to settle at $4.523 a pound. April platinum
lost 3.3% to $1,052.30 an ounce and June palladium
ended at $2,417.60 an ounce, down 13.6%. Prices for palladium had settled at a record high just over a week ago on worries over supplies of the metal from Russia.