Gold prices remain weak as US yields rise

Gold prices remained weak on Tuesday after last week’s selloff, trading sideways around the $1,870 per ounce level. If gold prices continue to increase, resistance may be encountered near $1,950 per ounce, while if gold prices decline, support may be found near $1,825 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 was firm on Tuesday, with the dollar index remaining close to 103.5 most of the day. US Treasury yields gained strength on Tuesday, with the US 10-year bond rising to 3.67%.

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. After a series of aggressive rate hikes last year, the Fed has finally decided to relax its hawkish policy, boosting gold prices. The Federal Reserve raised interest rates by only 25 basis points last week, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. 

Fed Chair Jerome Powell caused a stir in markets, expressing himself as satisfied with the ‘disinflation’ process. Powell emphasized that ongoing rate hikes are appropriate since substantial evidence is necessary that inflation is under control.

On Tuesday, Powell confirmed that the disinflation process has begun, but emphasized that it still has a long way to go. Powell’s speech on Tuesday was cautious, reinforcing the notion that the Fed’s decisions will be based firmly on disinflation rates and the state of the US economy. 

US inflation seems to be cooling, providing support for gold prices. Gold prices surge as the Fed and other central banks start to scale back their aggressive rate hiking. Even though inflation rates remain high, signs of cooling price pressures have reduced rate hike expectations, providing support for gold prices. 

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Written by:
Myrsini Giannouli

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