Gold under pressure by rising US treasury yields

Gold prices have been under pressure by the advance of the US dollar and treasury yields this week. Gold prices continued to decline on Wednesday, dipping below the key $2,300 per ounce level. If gold prices rise, resistance may be encountered near $2,368 per ounce, while if gold prices decline, support may be encountered near $2,295 per ounce. 

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar continued gaining strength on Wednesday, and the index rose above the 106.0 level. US treasury yields also strengthened, boosting the dollar, with the US 10-year bond yielding 4.33%.   

Gold prices have experienced a meteoric rise in the past few months and are trading in overbought territory. Geopolitical tensions raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high. Israel threatens to declare an all-out war with Hezbollah, which will destabilize the region further.

Gold prices are affected by central banks’ interest rates. A restrictive monetary policy hinders economic growth lowering the global economic outlook and putting pressure on gold prices. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected. 

Odds of a Fed rate cut in September are currently below 70%, while a rate cut by November is fully priced in. The uncertainty around the US Fed rate outlook is causing volatility in gold prices. 

US Core PCE Price index data due on Friday are especially important this week. This is the Fed’s preferred inflation gauge and is likely to affect gold prices. Analysts are predicting that Friday’s data will show a drop in the Core PCE Price index for May, which may spur the Fed to start lowering interest rates.

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Written by:
Myrsini Giannouli

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