Gold rally halted by rising treasury yields

The rally of gold prices was halted on Wednesday as rising US treasury yields put pressure on gold, which remained steady around the 2,025 per ounce level. If gold prices increase, resistance may be encountered near $2,040 per ounce, while if gold prices decline, support may be encountered near $1,984 per ounce. 

Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar continued to retreat on Wednesday after FOMC meeting minutes proved underwhelming, with the dollar index dropping below the 104 level. US treasury yields, however, gained strength, with the US 10-year bond yielding approximately 4.31%.        

The Fed kept interest rates unchanged at its latest monetary policy meeting within a target range of 5.25% to 5.50%. The Fed, however, has removed the tightening bias from its policy statement, indicating that the central bank is preparing to pivot to a less restrictive monetary policy, boosting gold prices.

Rate cut expectations have been fluctuating strongly in the past couple of weeks, affecting gold prices. Odds of a rate cut in March dropped to 7% after the release of the US inflation data, from over 50% two weeks ago. Rate cut odds in May are also down to 30% from over 80% a few weeks ago. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly. 

Gold prices are propped up by rising geopolitical tensions, which raise the appeal of safe-haven assets. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets, boosting gold prices. The war between Israel and Hamas is threatening to spill over the Middle East as tensions rise in the Red Sea area, while the US and the UK have launched a coordinated action against Houthi rebels in Yemen. Over the weekend, an Israeli war cabinet member warned that unless Hamas freed all hostages held in Gaza by the start of Ramadan on March 10th, Israel would invade Gaza's city of Rafah.

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Written by:
Myrsini Giannouli

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