The surge in real yields pushes the gold price down

Gold price has been weighed down by the rising dollar and strong US yields. The dollar has gained strength these past few weeks, with the dollar index rising at the 101 level, spurred by hawkish Fed rhetoric. 

This week, the rise in US real yields has pushed the gold price down. Real yields have been boosted by a tightening in the Fed’s monetary policy, with the 10-year real treasury yield hitting positive territory on Tuesday. Real yields compete directly with gold, which is a non-interest-bearing asset, and their rise puts pressure on the price of gold.

On Wednesday though, yields withdrew across the US treasury curve, with the US 10-year treasury note falling from 3% to approximately 2.8%. The dollar also withdrew on Wednesday, providing support for the price of gold. 

Gold price experienced some volatility on Wednesday, trading around $1,950 per ounce. If the price of gold decreases, support may be found near $1,893 per ounce and further down at 1,877 per ounce, while resistance may be found at around $2,000 per ounce.

The price of gold has been driven by conflicting market forces over the past weeks. On one hand, gold is supported by intensifying tensions between Russia and Ukraine, as well as by new western sanctions on Russia. On the other hand, the gold price is undermined by increasingly hawkish Fed policy, which boosts the dollar and real yields.

Gold’s safe-haven status supports its price, as reports of violent Russian attacks against Ukraine and new sanctions on Russia drive investors away from riskier assets. The conflict in Ukraine has triggered a risk-aversion sentiment, propelling the price of gold to $2,050 per ounce last month. 

Sanctions against Russia and increasing energy costs have been driving commodity prices up. The US and the EU have further increased economic sanctions on Russia, with the EU targeting the energy sector for the first time, banning coal imports with an estimated total worth of €4bn a year. Rising energy prices contribute to rising inflation, which is hitting record highs in the US, the EU, the UK, and many other countries. Global inflationary pressures support gold price since it is often used as an inflation hedge.

Concerns about the state of the economy in China, after the fresh rise of Covid cases and the lockdown in Shanghai, have also been boosting the price of gold.

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Written by:
Myrsini Giannouli

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