Gold Prices Drop 0.4% Amid Rising Dollar and Treasury Yields
Quick Look:
- Gold Price Decline: Gold slipped 0.4% to $2,330.44 per ounce, impacted by a stronger U.S. dollar and rising Treasury yields.
- Dollar Impact: A 0.5% stronger dollar has made gold less attractive to non-dollar holders, contributing to its recent price drop.
- Technical Weakness: Gold’s RSI indicates a bearish trend, with potential further decline if it breaches the 50-day SMA support at $2,324.
Gold prices slipped for a second consecutive session on Thursday as the U.S. dollar and Treasury yields edged higher. This movement occurred ahead of key inflation data that could clarify the Federal Reserve’s interest rate plan further. Spot gold was down 0.4% at $2,330.44 per ounce as of 03:11 GMT, following a 1% drop on Wednesday. At the same time, U.S. gold futures dropped by 0.5% to $2,328.60, suggesting a downward trend driven by external economic factors.
The Impact of a Strengthening Dollar
The dollar’s 0.5% increase in value has rendered gold, which is priced in dollars, less appealing to investors using other currencies. This trend has been a significant factor in the recent decline in metal prices. Benchmark U.S. 10-year bond yields remained near the multi-week highs reached in the previous session, further pressuring gold prices. Since hitting a record high of $2,449.89 on May 20, bullion has dropped more than $100. This decline has been exacerbated by hawkish remarks from Federal Reserve officials and meeting minutes indicating a prolonged path to achieving the 2% inflation target.
Gold is traditionally considered an inflation hedge. However, rising interest rates increase the opportunity cost of holding non-yielding assets like gold. Traders currently price in about a 59% chance of a rate cut by November, according to the CME FedWatch Tool. This speculation adds a layer of complexity to the gold market as investors weigh the potential for future monetary easing against current economic signals.
Technical Analysis: A Bearish Outlook
Gold’s price action has also reflected technical weaknesses. On Wednesday, metal failed at the rising wedge support-turned-resistance at $2,372 and turned south. The 14-day Relative Strength Index (RSI) lost its bullish momentum, flipping into bearish territory and recalling gold sellers. Currently, the RSI points lower, below the 50 level, near 48.00, implying further downside potential for metal prices.
For metal sellers to initiate a fresh downtrend, they need to crack the 50-day Simple Moving Average (SMA) support at $2,324. If this level is breached, the next key downside target would be the May 3 low of $2,277. This technical outlook suggests that gold may continue to face downward pressure in the short term, especially if economic indicators and Federal Reserve policies do not provide a supportive environment.
Awaiting Key Inflation Data
Investors are now keenly awaiting the U.S. core personal consumption expenditures (PCE) data, which is the Federal Reserve’s preferred measure of inflation, due on Friday. This information will play a key role in forming market expectations about the future direction of the Federal Reserve’s interest rates. If the inflation data suggests persistent price pressures, it could further solidify the case for maintaining higher interest rates, thereby exerting additional pressure on gold prices.
Conversely, should the data show easing inflation, it could revive hopes for a more dovish Federal Reserve stance. This change might provide relief to the gold market. However, the current market sentiment is shaped by a strengthening dollar and high Treasury yields. Therefore, gold may continue to encounter challenges.
The gold market is currently navigating a complex landscape shaped by strong external economic factors, technical weaknesses, and pivotal upcoming data releases. Investors must stay vigilant and responsive to these developments to navigate the volatile gold market effectively.
