‘Gold just can’t catch a break,’ sinks about 2% Thursday as traders respond to Fed’s tighter policy stance

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Gold futures on Thursday were headed sharply lower, on track for the sharpest daily slump for the precious metal in over six weeks, a day after minutes from the Federal Reserve’s December gathering showed that officials thought rate increases could come sooner and possibly at a faster pace then they previously expected as inflation runs hot.

The dynamic sets up as a bearish one for bullion, at least in the short term, because higher interest rates could draw interest away from gold and toward government debt.

February gold GCG22, -1.78% GC00, -1.78% was trading $35.10, or 1.9%, lower at $1,790 an ounce, after rising 0.6% in regular trade on Wednesday, with the asset currently knifing below a level at $1,800 that is often viewed as psychological support for the yellow metal.

“What investors in these assets need to see is a sharp drop in inflation to deter the Fed from tightening too fast. If that doesn’t happen then we may well see further struggles in both assets down the line,” wrote Razaqzada.

“Gold just can’t catch a break,” he wrote.

The Federal Open Market Committee minutes from the December meeting, which came about a half-hour after gold futures prices settled Wednesday, also indicated that policy makers may be more inclined to take a more aggressive tack in winding down the central bank’s $8.9 trillion balance sheet than the last time it reduced it.

The minutes have helped to drive selling in bonds, with the heighten expectation of tighter financial conditions on the horizon and the possibility that at least three rate increases could result from Fed deliberations this year.

Against that backdrop, Treasury yields popped sharply higher, with the 10-year Treaury note TMUBMUSD10Y, 1.736% rising to around the highest rate since March at 1.74%.

Investors on Thursday sifted through weekly jobless claims, which climbed 7,000 to 207,000 in the week ended Jan. 1 and data on the U.S. trade deficit widened to $80.2 billion in November from $67.2 billion in the prior month.

Meanwhile, March silver  SIH22, -4.06% SI00, -4.06% was trading $1.03, or 4.5%, lower at $22.14 an ounce, following a 0.5% climb a day ago for gold’s sister metal.

The metal was unable to break above that $1830 key resistance level, he noted and said that gold bulls need to see a clean break above $1830 to tip the balance back in” the favor of buyers.