21.10.202211:34 Forex Analysis & Reviews: Gold and silver will react negatively to interest rates

Gold in the spot and futures markets has lost all of the small gains that it started at the beginning of the week.

Silver futures also lost most of their gains:

There seems to be a group of traders who see any profit, small or large, in gold and silver as an opportunity to wipe out those profits by actively going short.

The only day when gold and silver closed in positive territory was Monday, the high and close gold reached during which is currently the highest it has made this week.

The recent bearish sentiment in the gold market was a direct result of market participants' genuine concern about the impending 75 basis point rate hike at the last two FOMC meetings of this year in November and December. Comments made by several Federal Reserve officials underscored their intentions and focused on lowering inflation by raising interest rates. This resulted in higher yields on US debt instruments across the board, including 10-year notes and 30-year Treasury bonds.

The yield has steadily risen to a higher value and continues to trade today. The yield on 10-year bonds rose 2.4% yesterday and currently stands at 4.226%. The yield on 30-year bonds increased by 2.18% and currently stands at 4.216%.

There is still a reciprocal return between 10-year bonds and 30-year bonds, with 10-year bonds having a higher yield than a longer-term debt instrument. This indicates that investors and traders perceive current levels of return to be higher than they will be in a few years.

Recent statements by Fed officials James Bullard and Neel Kashkari have confirmed that they are aiming to bring benchmark interest rates closer to 4% or 5%.

As long as the Federal Reserve continues to raise its base rate, it is likely that gold will react negatively to higher interest rates instead of focusing on inflationary pressures that continue to persist.