Gold prices tumble more than 1% on Wednesday due to higher U.S. yields and a stronger dollar. Spot gold was down 1.5% at $1,974.89 per ounce by 1026 GMT, while U.S. gold futures were down 1.7% to $1,984.90. The increase in benchmark U.S. Treasury yields led to a surge in the dollar, making gold less affordable for buyers holding other currencies.
The correction in gold prices can be attributed to markets readjusting expectations of the Fed's rate-hike path. The delay in gold's rally is expected to be short-lived, as the market re-prices when rates would peak. St. Louis Fed chief James Bullard also indicated that the U.S. central bank should continue raising rates due to recent data showing persistent inflation.
A blackout period is set to start on the weekend ahead of the central bank's May meeting. Before that, a slew of Fed speakers is scheduled to give speeches this week. The statements by these speakers are likely to have an impact on market sentiment.
Gold was trading below its 21-day moving average of around $1,990, signalling some loss of momentum and triggering some profit-taking. This may have contributed to the decline in gold prices.
Euro zone inflation eased last month but underlying readings remained stubbornly high, with Britain's inflation being the highest in western Europe. This has raised concerns of higher rates by the European Central Bank and Bank of England.
The surge in U.S. Treasury yields has caused a rise in the dollar, making gold less affordable for buyers holding other currencies. This has also led to a correction in gold prices due to market reassessment of the Fed's rate hike path. Forex traders are keeping a close eye on these developments as they may impact currency valuations. Furthermore, the statements by Fed speakers this week are likely to have an impact on the forex market. Additionally, concerns of higher rates by central banks in Europe may also impact currency markets.