Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinGold gained 0.4% to close near $1,871 as Treasury yields and the dollar pulled back ahead of tomorrow's rate hike announcement by the Fed, lifting alternative stores of value.

The FOMC begins a momentous meeting on monetary policy today, with investors widely expecting the central bank to hike interest rates by 50-basis points, the biggest one-day increase since 2000. The Fed is also expected to launch quantitative tightening, the process of unwinding its $9 trillion balance sheet.

After most Fed officials telegraphed aggressively tighter monetary policy over the past month, traders have priced much higher rates into the markets, driving Treasury yields and the dollar sharply higher in recent weeks.

In what may be a "buy the rumor, sell the fact" scenario, Benchmark 10-year Treasury yields pulled back from four-year highs above 3% today, with traders perhaps wondering whether they've gotten ahead of themselves in the recent bond selloff. Lower yields reduce the opportunity cost for holding gold instead of bonds.

Similarly, the dollar fell 0.3% from 20-year highs against major rivals as Forex traders reassessed whether the buck's Fed-driven rally has been overdone. A weaker dollar lifts gold and other commodities by making them less expensive in other currencies.

Of course, if the Fed jumps straight to a 75-basis-point hike tomorrow or strikes an especially hawkish stance in its statement, yields and the dollar could easily resume their climb, putting gold under pressure.

In any event, gold will remain supported in the near term by safe-haven inflows because of the war in Ukraine and concerns that the Fed, through overly aggressive tightening, may tip the economy toward recession. Demand for inflation hedges should also keep a high floor under the metals.

The other precious metals were also higher, with silver adding 0.4% while platinum and palladium picked up 2.8% and 1%, respectively.

At the Comex close: June gold gained $7 to $1,870.60; Silver added 8 cents, to $22.67; July platinum climbed $25.80 to $958.60; and June palladium rose $22.30 to $2,238.30 an ounce.