Gold prices dragged down by stronger treasury yields

Gold prices edged lower on Monday, dropping to the $1,976 per ounce level as the US dollar and treasury yields started to rally. If gold prices increase, resistance may be encountered near $2,010 per ounce, while if gold prices decline, support may be found near $1,950 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 declined in early trading on Monday, dragged down by weak US treasury yields. The dollar index dropped to the 104.8 level but pared some losses later in the day, reclaiming the 105.3 level as US treasury yields started to rally. US treasury yields collapsed last week, with the US 10-year bond yielding 4.52%, but strengthened on Monday, touching 4.65%. 

Gold traded with low volatility last week and failed to capitalize on the rivaling dollar’s weakness. Gold prices show signs of having peaked and struggled to retain the previous week’s highs even after US treasury yields tanked.

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. Last week, FOMC members voted to keep interest rates unchanged at a 22-year high within a target range of 5.25% to 5.50%. A pause in rate hikes was widely anticipated, however, and had already been priced in by markets, and the effect on gold prices was muted. 

Fed Chair Jerome Powell’s speech after the conclusion of the meeting had hawkish undertones, but markets are not convinced that the Fed intends to resume its tightening cycle. Market expectations that US interest rates have peaked are raising the comparative appeal of gold against the dollar as a haven asset.

The crisis in Israel has given rise to a risk aversion sentiment, boosting demand for gold. Fears of the Israeli war spreading to the Middle East are increasing the appeal of haven assets such as gold. Gold prices increase in times of war as more traders shy away from riskier assets and invest in assets that are more likely to preserve their value. 

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Written by:
Myrsini Giannouli

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