Gold prices tumble on rising US treasury yields

Gold prices tumbled on Monday, dropping below $1,780 per ounce. If gold prices decline, support may be found near $1,765 per ounce, while resistance may be encountered at$1,784 per ounce and higher up near $1,810 per ounce.

The dollar traded with low volatility on Monday, ahead of Tuesday’s CPI data and Wednesday’s Fed meeting. The dollar index was near 105.1 at early trading, then dipped to 104.7 during the day, before bouncing back, touching 105.2. US Treasury yields edged higher on increased rate hike expectations, with the US 10-year bond yielding above 3.6%. 

Gold prices have been affected largely by US treasury yields lately, as these reflect Fed rate hike expectations. Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. The US yields’ rally on Monday pushed gold prices down.

The next US Fed monetary policy meeting is scheduled on Wednesday and traders are attempting to gauge the Fed’s intentions ahead of the meeting. The US Federal Reserve voted to increase interest rates by 75 basis points at its last monetary policy meeting. Market expectations currently range between a 50-bps and a 25-bps interest rate increase this week, with odds in favor of a 25-bps rate hike. Market expectations of future rate hikes were considerably trimmed in the past few weeks on cooling US inflation. On Friday however, US PPI data exceeded expectations, indicating that US inflation remains high, boosting the odds of higher rate hikes.

This week is packed with important news for the dollar that is likely to affect gold prices, especially the Fed interest rate decision on Wednesday. The release of the CPI inflation indicators on Tuesday may cause high volatility in dollar and gold prices ahead of the Fed meeting. Policymakers will rely largely on the most recent inflation print to decide how much they need to raise interest rates.

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Written by:
Myrsini Giannouli

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