Gold Prices Edge Higher on Dollar's Strong Momentum

Gold prices edged higher on Wednesday, as a stronger dollar and higher 10-year Treasury notes supported the precious metal, following President Donald Trump’s decision to depart from the 2015 Iran nuclear accord.

Gold futures for the June contract rose by 0.1 percent to $1,315.60 per troy ounce, while spot gold declined by 0.06 percent to $1,315.30, after marking its lowest since May 3 of 1,304.11.

Other precious metals, including silver futures for July delivery gained 0.9 percent to $16.625, while platinum futures added 0.5 percent to $917.50.  

US Dollar Rise on Higher Bond Yields

Finding support on higher bond yields, the dollar managed to regain its footing after a brief drop earlier in the session.

The US dollar index, which gauges the greenback’s strength against six major peers, recorded $93.20 earlier in the day, its highest since December 19. It has since retreated by 0.1 percent to $92.79.

The greenback raised 0.5 percent to 109.72, against the safe-haven currency yen.

The gains came after the 10-year US Treasury notes climbed above the 3 percent barrier to mark its biggest increase in two weeks, as the rally in oil prices bolstered inflation expectations. The 10-year yield last stood 0.9 percent higher to 2.997, while the 2-year yield added 0.3 percent to 2.522.

The 10-year Treasury yield would be able to hit its highest since 2014, provided that it surpasses its 3.035 record on April 25.

A more potent dollar tends to boost gold prices for overseas buyers, while higher Treasury yields make the precious metal less appealing to yield seeking investors.

Head of commodity strategy Ole Hansen said a series of US bond auctions this week might lift yields further and add pressure the metal, risking the gold to challenge the key $1,300 support area.  

US to Exit Iran Nuclear Accord

Escalating the risk of a dispute in the Middle East and refusing to heed the advice of his European allies, Trump on Tuesday announced the US’ exit from the international nuclear agreement with Iran.

Hansen said the fact that they already have the decision on Iran has eliminated some of the geopolitical support for the gold.

The gold often improves in times of political or economic uncertainty, since it is widely recognized as a safe-haven asset along with the US dollar and the Japanese yen.    

The deal, which has lifted sanctions on Iran, has been hit with criticism from the President, as he saw that it did not address Iran’s ballistic missile program, its nuclear activities beyond 2025, or its role in the feud between Yemen and Syria.

Trump plans to restore broad sanctions on the country to undermine what he described as a one-sided agreement that should have never been made. He has also warned about subjecting any countries that would help Iran in its search for nuclear weapons to sanctions.     

The limits are likely to take effect immediately, which means that companies will face sanctions if they make any new business transactions with Iran. Foreign companies will have a 90-day and 180 day periods to ease their existing contracts with the country.

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