Gold plummets as yields surge

Gold prices tanked on Tuesday, dropping to $1,940 per ounce. If gold prices increase, resistance may be encountered near $1,983 per ounce, while if gold prices decline, support may be found near $1,938 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 dipped on Tuesday, with the dollar index dropping to 103.3. US Treasury yields surged however, with the US 10-year bond yield touching 3.82%.   

Major Central Banks continue to raise interest rates, causing economic uncertainty, which provides support for the safe-haven gold. Last week, the Reserve Bank of Australia and the Bank of Canada raised interest rates by 25bps. This week, the US Federal Reserve, the ECB, and the BOJ are holding their policy meetings, although only the EU is expected to hike rates this month.

The Federal Reserve has signaled a pause in rate hikes, weakening the dollar, and boosting gold prices. The U.S. Federal Reserve is holding its next policy meeting on Wednesday and its outcome is expected to affect gold prices. 

Markets are pricing in an 80% chance that the Fed will not raise interest rates at its meeting this week for the first time in well over a year. Fed officials have signaled that the central bank will forego a rate hike, boosting gold prices. Expectations of a shift to a more dovish policy provide support for gold prices.

US CPI data for May are scheduled to be released on Tuesday, just a day before the Fed’s rate decision. This week’s CPI data may affect the Fed’s decision and can cause volatility in gold prices.

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Written by:
Myrsini Giannouli

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