Gold prices settled lower Wednesday, with rising bond yields and a firmer dollar sending prices to their lowest finish in five weeks.
Gold futures had clawed higher Tuesday after three consecutive sessions of declines even as Treasury yields, which tend to move inversely to precious metals prices, broke above 3% for the first time since January 2014. YieldsTMUBMUSD10Y, -0.21% weighed on gold with higher moves Wednesday, reaching 3.029% in Wednesday dealings.
Heavy price action in gold is "due to a combination of rising rates and a stronger dollar," Tyler Richey, co-editor of the Sevens Report, told MarketWatch. "Gold has been pinned in a tight range between $1,310 and $1,360 all year and while that range is still intact for now, a continued rise in bond yields and the greenback could see the bottom end of that trading range tested before the end of the week."
June gold GCM8, +0.14% fell $10.20, or 0.8%, to settle at $1,322.80 an ounce, giving up its 0.7% gain from Tuesday. Prices settled at the lowest for a most-active contract since March 21, FactSet data show.
The rise in U.S. interest rates has come as traders increasingly start to price in four interest-rate hikes in 2018 from the Federal Reserve, rather than the three signaled by policy makers.
In a recent note, Edward Meir, independent commodity consultant for INTL FCStone, said he believes gold "will have difficulty withstanding what we see as a rising trend in both the dollar and U.S. Treasury rates and see both pushing higher at least going into Friday's key Q1 GDP reading."
See MarketWatch's economic calendar
Higher yields can dull the investment appeal of nonyielding bullion. It is also true that accelerating inflation can eventually lure investors into the shelter of gold, meaning bond market moves tend to have mixed implications for the metal. So far, however, rising yields have driven gold lower.
Read: Here's why the stock market and commodities are no longer in lockstep
The ICE U.S. Dollar Index DXY, -0.08% was up 0.5% at 91.19. Its moves impact the appeal of dollar-priced commodities, including gold, to investors using other currencies. U.S. stocks, meanwhile, struggled on Wednesday as the prospect for higher yields elsewhere made equity investors uneasy.
May silver SIK8, +0.29% fell 20.1 cents, or 1.2%, to $16.502 an ounce. Gold's sister metal has traded in volatile fashion since tumbling 3.4% Monday.
The gold/silver ratio, which had fallen for a time to 78, has climbed back almost to 80 as a result, noted analysts at Commerzbank led by Carsten Fritsch. "Silver has clearly been dragged down by base metals in recent days, whereas gold has fared somewhat better, despite suffering some losses," they added.
The analysts also remarked on a mixed demand picture for silver, citing slightly conflicting reports. According to the CPM Group, global silver demand this year will grow by only 0.8% to 934.2 million ounces. The CPM Group says this is the lowest demand growth since 2012. Accordingly, the global silver market is likely to show a surplus of around 44 million ounces in 2018.
By contrast, Thomson Reuters GFMS is more optimistic in the World Silver Survey 2018 it compiled for the Silver Institute. GFMS envisages a small deficit on the silver market in 2018 after supply already failed to keep pace with demand last year.
Read: Global economic growth was a blessing and curse for 2017 silver demand
Elsewhere in the metals market, May copper HGK8, +0.29% fell 0.2% to $3.135 a pound, while July platinum PLN8, +0.21% fell 2.4%, to $912.70 an ounce.
June palladium PAM8, +0.21% shed 0.4% to $967.50 an ounce. The contract still trades up over 2% month to date despite pulling back sharply in recent sessions. U.S. tensions with Russia, which threaten global supplies, have recently fueled strong weekly gains.
The SPDR Gold Shares GLD, -0.65% exchange-traded fund fell 0.7% and the iShares Silver Trust SLV, -0.95% fell 1.1%. The VanEck Vectors Gold Miners GDX, -0.88% shed 0.4%.