Gold gains strength on weakening treasury yields

Gold prices gained strength on Tuesday, rising above the key $2,400 per ounce level. If gold prices rise, resistance may be encountered near $2,432 per ounce, while if gold prices decline, support may be encountered near $2,350 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 remained steady on Tuesday, and the index hovered around the 104.5 level. US treasury yields declined, boosting gold prices, with the US 10-year bond yield dropping to 4.14%.  

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. Gold prices gained strength this week after a rocket strike by Hezbollah in the Israeli-occupied Golan Heights over the weekend raised concerns of an all-out war in the region.

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. 

This week we expect increased volatility in gold prices as three major central banks are holding their monetary policy meetings. The Bank of Japan and the US Federal Reserve will announce their interest rate decisions on Wednesday, and the Bank of England on Thursday.

The Fed is expected to keep interest rates steady this week but will likely signal a rate cut in September. Fed rate cut expectations in September are currently above 90%, boosting gold prices.

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Written by:
Myrsini Giannouli

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