Gold futures declined 0.15% to close at $4063.42 per ounce on local time May 15, marking approximately 24% below the January 29 peak of $5354.8 per ounce. The decline followed rising US 10-year TIPS rates, which increased from 1.7% to 2.2% since March, and a strengthening dollar index that climbed from 90 at year start to current 100. The price retreat represents a reversal from the 'everything rally' that drove investors to accumulate gold throughout last year, with the traditional safe-haven asset now facing reduced demand as interest rates rise and bond yields become more attractive.
Gold Futures Drop 24% From January Peak
According to Investing.com on May 16, gold futures closed at $4063.42 per ounce on local time May 15, down 0.15% from the previous trading day. This represents approximately 24% below the year's high of $5354.8 per ounce recorded on January 29. The decline occurred despite ongoing Middle East conflict risks, while US and Japanese equity markets continued to rise.
TIPS Rates Rise From 1.7% to 2.2% Since March
The US 10-year Treasury Inflation-Protected Securities (TIPS) rate increased sharply starting in March. TIPS rates rose from 1.7% to current 2.2%. This rate increase reduced gold's relative appeal, as gold holdings generate no dividend or interest income. When interest rates decline, investors typically sell bonds to purchase gold, increasing demand. Conversely, higher rates make bonds more attractive, reducing gold investment demand. Market speculation about Kevin Warsh, considered a hawkish figure, as potential Federal Reserve chair contributed to rate increase expectations.
Dollar Index Climbs From 90 to 100
The dollar index, which measures the US dollar's value, rose from 90 at year start to current 100. Gold trades in dollars, making purchases more expensive when dollar value strengthens. A stronger dollar forces buyers to pay premiums above market prices. The dollar index increase occurred even during US-Iran conflict, indicating sustained global confidence in dollar dominance.
Central Banks Sold Net 121 Tons in March
Central banks, which had supported gold demand, temporarily halted purchases. According to the World Gold Council, central banks sold a net total of 121 tons in March. Although they resumed net buying in April, the market interpreted the March sell-off as contributing to the sharp price decline during that period.
Goldman Sachs Lowers Year-End Forecast to $4900
Global investment banks reduced their gold price outlooks. Goldman Sachs recently lowered its year-end gold price forecast from $5400 per ounce to $4900 per ounce, citing delayed interest rate cuts that diminish gold's appeal. Deutsche Bank also reduced its Q4 gold price forecast by 17% from previous estimates. Daishin Securities researcher Choi Jin-young stated that gold serves as a hedge when currency value deteriorates, but without expansive monetary policy as in the past, gold's hedging demand will remain limited. The World Gold Council projected gold prices will likely remain range-bound, while central banks and long-term investors' bargain-hunting demand will limit downside.
FAQ
What caused gold futures to decline on local time May 15?
Gold futures fell 0.15% to $4063.42 per ounce on local time May 15, driven by rising US 10-year TIPS rates from 1.7% to 2.2% since March and a strengthening dollar index that increased from 90 to current 100.
Why did Goldman Sachs lower its gold price forecast?
Goldman Sachs reduced its year-end gold price forecast from $5400 to $4900 per ounce, citing delayed interest rate cut timing that reduces gold's relative investment appeal compared to bonds.
