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Metals Stocks: Gold falls from a 5-week high to its lowest finish in a week as dollar index touches a more than 2-year high

Gold futures fell on Tuesday, pulling back from the five-year high it settled at a day earlier to close at its lowest finish in just over a week, as the benchmark U.S. dollar index reached its highest levels in more than two years.

“Heightened geopolitical risks and global growth concerns could trigger risk aversion, sending investors rushing towards gold’s safe embrace,” said Lukman Otunuga, manager, market analysis at FXTM. However, an appreciating dollar, rising Treasury yields, and expectation for a Federal Reserve interest-rate hike “may create multiple obstacles down the road.”

On Monday, Federal Reserve Bank of St. Louis President James Bullard said Monday that when it comes to the size of a rate increase, one greater than 50 basis points “is not my base case,” but he noted that the central bank has increased rates by more and wouldn’t rule out a potential 75 basis point increase.

Chicago Fed President Charles Evans on Tuesday, meanwhile, suggested that the Fed’s policy interest rate could be raised to as high as 2.5% by year end.

Against that backdrop, gold for June delivery
GC00,
-1.44%

GCM22,
-1.44%

fell $27.40, or 1.4%,to settle at $1,959 an ounce on Comex, the lowest most-active contract price finish since April 11, FactSet data show. May silver
SI00,
-2.94%

SIK22,
-2.94%

also lost 76 cents, or 2.9%, at $25.391 an ounce.

Monday’s close for gold was the highest for a most-active contract since March 10, when it ended at a roughly 19-month high of $2,000.40, according to Dow Jones Market Data. 

Gold posted gains in six out of the previous seven sessions, FactSet data show, in spite of headwinds from rising U.S. Treasury yields and a stronger dollar. Higher yields raise the opportunity cost of holding nonyielding assets like gold, while a firmer currency makes commodities priced in the unit more expensive to users of other currencies.

The dollar continued to tick higher on Tuesday, with the ICE U.S. Dollar Index
DXY,
+0.19%
,
which measures it against a basket of six major rivals, trading at its highest since March 2020. The Japanese yen
USDJPY,
+1.40%

has plunged versus the U.S. unit, with the Bank of Japan largely standing pat on its ultra-easy monetary policy as the Federal Reserve prepares to aggressively raise interest rates and unwind its balance sheet in an effort to rein in inflation.

Russia’s invasion of Ukraine has been credited with helping to lift gold by enhancing its appeal as a haven during periods of geopolitical uncertainty.

Gold has the potential trend higher, based on the charts, Otunuga said, but seems to be forming a new range. Support is seen at around $1,960 an ounce with resistance at $2,000. A move back below $1,960 could trigger a selloff toward $1,920, while a solid breakout above $2,000 could pave the way for tests of resistance levels seen at $2,009, $2,015 and $2,050.

In other metals trading, May copper
HGK22,
-1.88%

lost nearly 1.8% to $4.718 a pound. July platinum
PLN22,
-3.06%

fell 3.1% to $988.70 an ounce and June palladium
PAM22,
-2.50%

settled at $2,380.40 an ounce, down almost 2.7%.

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