Gold trades lower as stocks give up earlier gains, dollar adds to May advance

The ICE U.S. Dollar Index
DXY,
+0.22%,
a measure of the currency against a basket of six major rivals, was up 0.2% after trading near a 20-year high on Monday. A rising dollar can be a negative for commodities priced in the unit, making them more expensive to users of other currencies.

“In the currency space, king dollar reached levels not seen in 20 years, thanks to risk aversion and rising Treasury yields which climbed past 3.2% for the first time since 2018,” Lukman Otunuga, senior research analyst at FXTM, wrote in emailed comments Tuesday.

“Commodity markets also tumbled as investors looked for the sell button across all asset classes,” he said, adding that the gold likely faces continued “headwinds in the form of an appreciating dollar, rising Treasury yields and Fed rate hike bets.”

The benchmark 10-year Treasury rate
TMUBMUSD10Y,
2.969%
pulled back from its multiyear peak Tuesday to trade near 2.95%. Rates volatility this year has been a key source of pain for financial markets as the Federal Reserve gears up to aggressively raise interest rates in the coming months to cool high costs of living.

U.S. stocks turned mostly lower Tuesday, giving up robust earlier gains, with the Dow Jones Industrial Average
DJIA,
-0.60%
leading the major benchmarks
SPX,
-0.28%
lower.

Inflation data, due Wednesday, are likely to be the main event on the economic calendar, analysts said.

“Further downside risks for gold may lie ahead, as an inflation number surprising to the upside, which in this case would be anything above 8.1%, could strengthen the case for an increase in the pace of tightening by the Federal Reserve and fuel further dollar gains,” said Ricardo Evangelista, senior analyst at ActivTrades, in a note.

In other metals trade, July copper
HGN22,
-0.70%
fell 1.1% to $4.15 a pound. July platinum
PLN22,
+0.99%
rose 0.5% to $943.10 an ounce, while June palladium
PAM22,
-0.87%
was off 1.6% at 2,028 an ounce.