Gold prices advance as US treasury yields decline

Gold prices touched an all-time high of 2,212 per ounce last week, buoyed by Fed rate cut expectations. Gold prices gained strength on Wednesday, rising to the 2,195 per ounce level as US treasury yields declined. If gold prices increase, resistance may be encountered at $2,212 per ounce, while if gold prices decline, support may be encountered near $2,145 per ounce. 

Gold prices have experienced a meteoric rise recently and are currently trading in overbought territory. 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 remained firm on Wednesday, with the dollar index hovering around the 104.4 level. US treasury yields declined, with the US 10-year bond yielding approximately 4.19%.     

The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. The Fed’s forward guidance was overall dovish, boosting gold prices. For months now, markets have been speculating as to the timeline of the Fed’s pivot to a more dovish policy. 

Fed officials wish to see more evidence of disinflation before moving ahead with cutting interest rates. The Fed’s dot plot, however, which outlines policymakers’ expectations for the trajectory of interest rates over several years, showed that the Fed intends to proceed with cutting interest rates this year. The Fed’s dot plot in January predicted 3 rate cuts within the year of 25 basis points each. This projection has remained unchanged, raising expectations of a dovish pivot in the following months. 

Fed rate cut expectations are affecting gold prices. Odds of a rate cut in May are practically nil. Rate cut odds in June are approximately 60% and only 25 basis points of rate cuts are priced in by June. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly. 

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.

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Written by:
Myrsini Giannouli

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