Gold prices surge as US yields decline

Gold prices surged on Tuesday, benefiting from the dollar’s decline, touching $2,040 per ounce. If gold prices increase, resistance may be encountered near $2,053 per ounce, while if gold prices decline, support may be found near $1,984 per ounce. 

Gold prices gain strength as the US dollar and treasury yields decline. Increased expectations that the Fed has reached its rate ceiling have been driving treasury yields down, boosting gold prices.

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 extended losses on Tuesday, and the dollar index dropped to the 102.6 level for the first time since August. US treasury yields also edged lower on Tuesday, with the US 10-year bond yielding approximately 4.34%.  

Inflation in the US eased more than expected in October, driving down rate hike expectations and boosting gold prices. Headline inflation rose by 3.2% year-on-year in October from 3.7% in September, against expectations of a 3.3% print. 

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. Gold prices are propped up by expectations that the Fed’s tightening cycle is coming to an end, signaling the start of a Fed pivot. At the latest Fed meeting, FOMC members voted to keep interest rates unchanged at a 22-year high within a target range of 5.25% to 5.50%. The Fed has made it clear that its approach from now on will be data-driven and Tuesday’s inflation data have brought odds of a rate hike in December to zero. Market odds of another rate hike in December have dropped to zero, while markets are pricing in rate cuts as early as May.

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Written by:
Myrsini Giannouli

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