Gold dive halted as US yields pulled back

Gold prices steadied on Thursday after dropping for three consecutive days. Gold dive was halted on Thursday as US treasury yields pulled back. Gold traded sideways, oscillating around the $1,920 per ounce level. If gold prices increase, resistance may be encountered near $1,953 per ounce, while if gold prices decline, support may be found near $1,885 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 gained strength on Thursday, with the dollar index remaining above the 105 level for the first time since March. US Treasury yields retreated slightly however, with the US 10-year bond yielding 4.27%. 

Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise. The U.S. Federal Reserve raised interest rates by 25 basis points in July to a target range of 5.25% to 5.50%, the highest level in 22 years. 

The Fed’s aggressively hawkish policy over the past year has been paying off and inflationary pressures in the US are easing. Cooling US inflation rates have shifted market expectations towards a less hawkish direction. Strong economic data this week, however, showed that the US economy is resilient, increasing the odds of future rate hikes and driving gold prices down.

Federal Reserve Chair Jerome Powell, recently speaking at the Jackson Hole Symposium in the US, warned that the Fed is prepared to raise interest rates further to bring inflation down. Most investors are anticipating a pause in rate hikes, but the US Central Bank has signaled that further tightening is possible if inflation does not go down consistently. 

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Written by:
Myrsini Giannouli

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