Weakening treasury yields boost gold prices

Gold prices surged to the $2,040 per ounce level on Tuesday as the US dollar and treasury yields weakened. If gold prices increase, resistance may be encountered near $2,065 per ounce, while if gold prices decline, support may be encountered near $2,010 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 edged lower on Tuesday, dropping to the 104.2 level. US treasury yields also retreated, with the US 10-year bond yielding approximately 4.10%. 

The Fed kept interest rates unchanged at its monetary policy meeting last week within a target range of 5.25% to 5.50%. The Fed, however, has removed the tightening bias from its policy statement, indicating that the central bank is preparing to pivot to a less restrictive monetary policy, boosting gold prices.

Powell delivered a hawkish interview on CBS’s show ’60 Minutes’ on Sunday, stating that the Fed will only proceed with interest rate cuts once they see evidence that inflation is dropping sustainably. Powell reiterated his former statement that a rate cut in March is improbable and warned that the central bank will likely cut rates at a slower pace than the market expects. 

Rate cut expectations dropped sharply after Powell’s speech. Odds of a rate cut in March have dropped to 10%, while even rate cut odds in May are down to 60%. Most market analysts, however, believe that the central bank will start cutting interest rates by June. 

Gold prices are propped up by rising geopolitical tensions, which raise the appeal of safe-haven assets. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets, boosting gold prices. The war between Israel and Hamas is threatening to spill over the Middle East as tensions rise in the Red Sea area. Attacks on ships in the Red Sea area by Yemen's Iran-backed Houthi militia increase concerns that the crisis will widen to other areas in the region. 

The US and the UK have launched a coordinated action against Houthi rebels in Yemen. The US launched airstrikes on Friday and over the weekend against Iranian forces in retaliation for the previous week’s drone strikes against US troops. US Secretary of State Antony Blinken is starting another tour in the Middle East, aiming to ease regional tensions.

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Written by:
Myrsini Giannouli

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