Gold plummets as yields surge

Gold prices plummeted on Wednesday, dropping to $1,940 per ounce. If gold prices increase, resistance may be encountered near $1,983 per ounce, while if gold prices decline, support may be found near $1,931 per ounce.

Gold prices have been predominantly directed by the dollar’s movement, as competing gold typically loses appeal as an investment when the dollar rises. The dollar was volatile on Wednesday, with the dollar index dipping to the 103.7 level early in the day but rallying and climbing to 104.1 later in the day. US Treasury yields surged, with the 10-year bond yield touching 3.8%.

Fears of a US debt default promoted a risk-aversion sentiment in the past few weeks, boosting safe-haven gold, although the dollar has outperformed gold as a safe-haven asset. US President Joe Biden and Republican House Speaker Kevin McCarthy have negotiated a deal that will raise the government's $31.4 trillion debt ceiling, preventing the US from going into default. The US Congress passed the value to raise the US debt limit on Friday, and the US President signed the deal on Saturday, putting pressure on safe-haven gold.

The Federal Reserve has signaled a pause in rate hikes, boosting gold prices. US Federal Reserve Chair Jerome Powell has indicated that the US Central Bank may pivot in a more dovish direction.

The Federal Reserve raised interest rates by 25 basis points at its monetary policy meeting last week, bringing the benchmark interest rate to a 16-year high target range of 5.00% to 5.25%. Many analysts predict that there is a high probability of rate cuts starting in November. Expectations of a shift to a more dovish policy provide support for gold prices.

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Written by:
Myrsini Giannouli

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