METALS : Gold Steadies After Reaching 2018 Low

By Benjamin Parkin and Georgi Kantchev

Gold prices moved between small gains and losses on Wednesday, steadying after carving a new low for 2018 this week.

The combination of a stronger U.S. dollar, higher Treasury yields and concern about rising interest rates prompted a selloff in the bullion market Tuesday, with prices seeing the largest single-day drop since 2016.

Some of those pressures eased Wednesday, with the dollar turning lower and bond yields flattening after recent gains. That brought some buying interest back to the gold market, though observers said chart patterns suggested that prices hadn't bottomed yet.

"It doesn't look very good," said Edward Meir at INTL FCStone Inc. "The market is really just buckling because of the strength in the dollar, the strength in the interest-rate picture."

Front-month gold futures for May delivery rose 0.1% to $1,290.20 a troy ounce, after falling earlier to a new low for the year. Some analysts suggested traders were searching for a bottom closer to the $1,280 mark, with others hoping to see prices return above $1,300.

Lower prices could spark some physical gold demand from investors and others for coins and jewelry, Mr. Meir said, which could help to limit losses going forward.

The WSJ Dollar Index, which measures the dollar against a basket of currencies, drifted both higher and lower on Wednesday morning before eventually falling 0.2% to 86.79. It is up nearly 4% in the past month. The yield on 10-year U.S. Treasury note was little changed from Tuesday. Yields move inversely to prices.

A stronger greenback makes gold more expensive for foreign buyers. The metal pays no interest, so it also looks less attractive against yield-bearing assets like bonds when rates rise.

The Federal Reserve is expected to raise interest rates at least two more times this year.

"We still see the U.S. rate cycle and U.S. dollar in the driving seat for gold," Carsten Menke, commodities research analyst at Julius Baer, wrote in a note to clients.

Mr. Menke, however, expects gold's prospects to improve later in the year as the "short-term rate cycle headwinds fade as the year progresses, opening up medium- to longer-term buying opportunities."

Market observers also pointed to an uptick in geopolitical tension as a potential boon for gold. North Korea this week suspended a meeting with South Korea and suggested that it could abandon coming talks with the U.S., objecting to military exercises between the two countries and pressure from Washington to push rapid disarmament.

Observers said those uncertainties could help stoke demand for gold as a haven asset, which investors typically buy at times of heightened instability.

"The impact of rising bond yields has severely diminished the strength of the precious metal though fundamental support levels will be expected to materialize amidst existing geopolitical issues," Benjamin Lu, analyst at Phillip Futures, wrote in a note to clients.

Immediate price reaction to North Korea's harsher tone was muted, puzzling some investors. Gold overnight rose to a peak of a little over $1,296 before giving back much of that gain.

Copper prices were mixed before turning higher. May-dated contracts rose 0.5% to $3.0585 a pound. The bulk of the gains came after the dollar turned lower.

Write to Benjamin Parkin at [email protected] and Georgi Kantchev at [email protected]