Gold futures pulled back Monday, faltering despite a global equity market selloff as a rising U.S. dollar appeared to outshine the yellow metal’s appeal as a haven.
Gold rose Friday as stocks and other assets perceived as risky came under pressure following data that showed the U.S. consumer-price index rose at a 40-year high of 8.6% year-over-year in May, defying expectations of investors looking for evidence that inflation had peaked. The reading is seen prompting the Federal Reserve to move even more aggressively than expected to tighten monetary policy in an effort to get inflation under control, risking a recession.
The Fed is widely expected to deliver a rate hike of 50 basis points, or half a percentage point, when it concludes a two-day policy meeting on Wednesday.
Gold gained despite a jump in the U.S. dollar, but the currency’s continued strength on Monday as global equities continued to fall appeared to weigh on the metal. Treasury yields were also on the rise, raising the opportunity cost of holding nonyielding assets like gold.
The ICE U.S. Dollar Index DXY, +0.49%, a measure of the currency against a basket of six major rivals, was up 0.6%, trading near a 20-year high.
“It is possible that the central bank will extend its summer action from two to three hikes, with some analysts talking about the possibility of this Wednesday’s rate decision surprising with a 75bp rise, instead of the previously expected 50bp,” said Ricardo Evangelista, senior analyst at ActivTrades, in emailed comments. “Against such background, gold will find support from the flight to safety, as investors abandon riskier assets, however, such gains will be capped by the strengthening dollar and rises in treasury yields.”