LONDON
Gold eased on Friday to stay on track for its first monthly loss this year, as hints from leading central banks that the era of easy money may be coming to a close pushed bond yields higher.
The metal is highly sensitive to rising yields, which lift the opportunity cost of holding non-interest bearing bullion.
Spot gold was down 0.2 per cent at $1,243.40 an ounce at 1145 GMT, while US gold futures for August delivery were $2.40 an ounce lower at $1,243.40.
Spot prices have fallen nearly 2 per cent so far in June, and are down 0.4 per cent on a quarterly basis. After a strong performance in the first quarter, they are still set to end the first half of the year up 8 per cent.
Comments from the Eurozone, British and Canadian central banks this week indicated that quantitative easing programmes put in place in the wake of the financial crisis may be being wound up, leading to a gradual normalisation of interest rates.
That comes in the wake of the Federal Reserve’s decision to hike US interest rates at its June meeting, and its indication that it will press ahead with plans to shrink its $4.5 trillion in bond holdings.
“We still have two rate hikes factored in for the Fed in the second half of the year, and we expect some reduction of the balance sheet,” Capital Economics analyst Simona Gambarini said.
“At the same time, in the UK and Europe, although policy will remain loose for some time, it will start to turn the other way,” she added. “So all in all, it doesn’t bode so well for gold prices.”
Germany’s benchmark 10-year bond yield was heading for its biggest weekly jump since late 2015, topping a week in which yields across the Eurozone have soared as investors brace for an end to the era of ultra-easy monetary policy.
On the other side of the Atlantic, benchmark US Treasury yields hit six-week highs on Thursday.
Rising yields helped offset the positive impact of a weaker dollar on gold. The US currency was on course for its worst quarter in seven years, recovering only marginally against major peers after a week of hawkish central bank rhetoric.
“The US dollar has softened, though this does not appear to have had the positive effect on price as we might have hoped,” MKS said in a note.
Among other precious metals, silver was down 0.5 per cent at $16.55 an ounce. Silver has seen the biggest fall among major precious metals this quarter, down 9 per cent, while palladium is the best performer, up 5.6 per cent.
Palladium was down 0.6 per cent at $842.23 an ounce on Friday, while platinum was up 0.3 per cent at $922.90.
