Soaring treasury yields push gold down

Gold prices plummeted on Wednesday dropping past the key psychological $1,900 per ounce level. Gold touched $1,875 per ounce for the first time since March. If gold prices increase, resistance may be encountered near $1,950 per ounce, while if gold prices decline, support may be found near $1,800 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 surged on Wednesday, with the dollar index rising above the 106.8 level, its highest value since November 2022. The dollar is moving in overbought territory supported by increased rate hike expectations and diminishing risk sentiment. US Treasury yields also continued gaining strength on increased future rate hike expectations, with the US 10-year bond yielding above 4.62% for the first time since 2007.        

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. FOMC members voted last week to keep interest rates unchanged at a target range of 5.25% to 5.50%. 

The Fed decided to pause rate hikes but that does not necessarily mean it has reached its rate ceiling. The Fed policy statement following the meeting left the door open for further rate hikes and market odds of another rate hike within the year are increasing.

Inflationary pressures in the US are not easing just yet, despite the Fed’s high-interest rates. Headline inflation came in hotter than anticipated, climbing to 3.7% year-on-year in August from 3.2% in July versus 3.6% anticipated. Increasing price pressures may push the Fed to continue its hawkish policy until inflation drops closer to the Fed’s 2% target.

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Written by:
Myrsini Giannouli

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