PRECIOUS-Gold erases losses as Treasury yields retreat

BY Reuters | TREASURY | 05/18/22 10:43 AM EDT

* SPDR Gold Trust sees more outflows

* Dollar index up 0.3% (Recasts, adds details, comments and updates prices)

By Ashitha Shivaprasad

May 18 (Reuters) - Gold reversed course to rise on Wednesday as a slide in U.S. Treasury yields helped offset pressure from a firmer dollar and the Federal Reserve's plans for aggressive interest rate hikes.

Spot gold rose 0.3% to $1,820.90 ounce by 12:35 p.m. (1635 GMT). U.S. gold futures were little changed at $1,819.00.

Treasury yields slid in choppy trading, tracking losses on Wall Street, after poor U.S. housing data added to growing concerns of an economic slowdown.

"Another round of weakness in the equity markets in combination with falling yields and safe-haven bids are driving gold prices higher," said David Meger, director of metals trading at High Ridge Futures.

Fed Chair Jerome Powell on Tuesday pledged that the U.S. central bank would ratchet up interest rates as high as needed to kill a surge in inflation.

"The real question and crux of the situation is if what Fed does is enough given the amount of inflation. If it isn't enough to quell inflationary pressures, gold will be supportive in that environment," Meger said.

Although gold is considered a hedge against inflation, rising interest rates dull interest in non-yielding bullion.

Limiting gold's advance, rival safe-haven dollar rebounded after posting its biggest single-day drop in more than two months.

Rupert Rowling, market analyst at Kinesis Money, said in a note that while gold improved slightly this week, bouncing back above $1,800, "as long as inflation remains a primary concern for the major economies, gold is likely to find it difficult to make significant gains with the spectre of rising interest rates severely denting the metal's appeal".

Reflecting overall sentiment, inflows into the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, continued to decline. Spot silver fell 0.2% to $21.58 per ounce, while platinum shed 1.6% to $936.08 and palladium fell 1.8% to $2,016.08.

(Reporting by Ashitha Shivaprasad and Swati Verma in Bengaluru; Editing by Shinjini Ganguli and Devika Syamnath)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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