Gold prices surge on weak US bond yields

Gold prices surged on Tuesday, touching $1,980 per ounce as US bond yields declined. If gold prices increase, resistance may be encountered near $1,983 per ounce, while if gold prices decline, support may be found near $1,893 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 steadied on Tuesday, with the dollar index climbing above the key 100 level. US Treasury yields on the other hand continued to decline, with the US 10-year bond yielding 3.78%. Gold prices gained strength on Tuesday, supported by softer US bond yields.

Gold rallied last week after US inflation data raised market expectations that the US Federal Reserve is nearing the end of its tightening cycle. 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. 

US inflation slowed more than expected in June, weighing the dollar down and boosting gold prices. The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in well over a year to a target range of 5.00% to 5.25%. 

The Fed has signaled that its tightening cycle is not over yet, however, and market odds are in favor of another rate hike in July after June’s pause. Even though US inflation cooled to 3% in June, dropping close to the Fed’s 2% goal, most analysts expect another 25-bp rate hike in July. There is, however, doubt on whether the Fed will continue hiking rates after July’s rate increase or whether July’s rate hike will be the last one this year.

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Written by:
Myrsini Giannouli

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