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Gold futures retreated on Monday, letting the market tackle its third decline over the past four sessions, as Treasury yields remain high and a dollar index firming up advanced.
December gold
GCZ8, -1.43%
decreased by $ 8.30, or 0.7%, to $ 1,197.40 an ounce. Despite fluctuating prices in recent sessions, Friday's gain was enough to give the metal an advance of about 0.8% over last week, according to FactSet data.
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Sister metal december money
SIZ8, -2.01%
fell 12 cents, or 0.9%, to 14.52 dollars an ounce early Monday, after a weekly loss of about 0.4%.
ICE US Dollar Index
DXY, + 0.35%
increased by 0.3% to 95.90; it was up about 0.6% last week and remains 4% higher this year, contributing to a nearly 10% drop in gold on the same segment.
The yield on 10-year treasury bills
TMUBMUSD10Y, + 1.37%
ended last week at nearly 3.23%, above last week's highest levels, while remaining close to the multi-year highs. US bond markets were closed Monday for the Columbus Day holiday.
Should know: UBS chief economist: Calming bond yields: "It's just 1994"
Because precious metals – generally used as safe havens by investors – do not yield, the commodity is vulnerable to collapse in a rising rate environment. This climate also tends to push up the dollar, in which gold is mainly quoted. The Federal Reserve has already raised rates three times in 2018 and is expected to raise its key rates a fourth time in December, which may lead to higher risk-free Treasury yields and a lower appetite for the yellow metal. .
Some analysts note, however, that gold's negative reaction to rising yields from a competing asset could reach a critical point, which means that fears that high rates may flow or that the economy may revive interest in the hedge asset.
"The strength of the dollar is clearly a key factor in the price of gold, with the negative correlation at stake. However, with rising Treasury yields, there is an additional factor of market fear which means that gold is getting also some safe haven offer. This could help limit gold sales, "said Richard Perry, market analyst at Hantec.
Investors have also followed the developments in Europe. The EU said Friday in a letter to the Italian Minister of Economy, Giovanni Tria, that his country's fiscal targets were a source of concern for the trading bloc, creating a conflict likely to to disrupt the market, support to have gold.
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