HG Markets

Gold Robust Despite Rise in Treasury Yields


Harvest Global Markets :

Gold prices (XAU/USD) recovered modestly on Tuesday, supported by a decline in the US dollar, although US Treasury yields rose to their highest levels since November 2007. The background to this rally in gold is the broader financial market’s anticipation of the upcoming Central Exchange news’ meeting of bankers on the trajectory of interest rates. Historically, a weaker dollar paved the way for dollar-denominated gold to appreciate, making it more attractive to foreign investors.

Yields on the benchmark 10-year U.S. Treasury note rose significantly, signalling strengthening market confidence that U.S. interest rates will stay high for an extended period of time. At the same time, the Federal Reserve’s outlook seems to point to another modest rate hike in November, followed by potential rate cuts in 2023. High interest rates typically drive bond yields higher and support the dollar, which reduces the attractiveness of effective asset bonds like gold.

Despite the upward trajectory of US Treasury yields, the US dollar has dropped from recent 10-week highs against other major currencies. The dollar’s pause on the upside, combined with its potential for further correction, could be the spark that triggers a strong rally in the gold market. Investors are closely watching gold’s decline, speculating about the optimal time to return to the market.

All eyes are on Fed Chairman Jerome Powell’s upcoming speech in Jackson Hole, Wyoming. His remarks will be important in assessing the Federal Reserve’s stance on interest rates. Powell is expected to praise the Fed’s efforts to bring inflation closer to target, perhaps easing some of the pressure on gold stemming from interest rate concerns.

Currently, the 4-hour price of gold (XAU/USD) at 1920 is marginally above its main support area, ranging from 1910 to 1900, hinting at the market finding some footing.

However, given its proximity to the 50-4H moving average, there’s potential for a short-covering rally to push prices through this level. The 14-4H RSI stands slightly above neutral at 52.01, indicating a possibility of upward momentum. The market’s posture remains cautious, but with a window for a bullish reversal.

Share this post