Gold tumbles below $4.150 as US bond yields, oil prices rise
- Gold price slumps to around $4,125 in Tuesday’s early Asian session.
- A rise in oil prices and higher US bond yields reinforced expectations of further Fed rate hikes.
- Traders will watch a run of US labor market and inflation data this week.
Gold price (XAU/USD) falls to near $4,125 during the early Asian session on Tuesday. The precious metal faces some selling pressure as rising US Treasury yields and expectations of further Federal Reserve interest rate hikes sap demand for the non-yielding metal.
The yellow metal tumbles by over 4% to $4,110, its lowest since August 5, in the previous session as oil prices climbed. The benchmark 10-year US Treasury yields reached their highest since June 2007, before paring gains
Higher energy prices can fuel inflation by raising costs across the economy. Gold is widely viewed as a hedge against inflation, but a high interest rate environment increases the opportunity cost of holding the non-yielding metal.
“The high bond yields and high oil price tandem continue to act as a thorn in gold’s side. Oil prices have risen on mixed signals about oil flows, which is keeping inflation front and centre for investors,” said Tim Waterer, chief market analyst at KCM Trade.
Iranian officials said that only diplomacy can solve its conflict with the US and Israel, after US President Donald Trump stated he rejected an Iranian proposal to reopen the Strait of Hormuz and end the war.
Traders brace for the US Personal Consumption Expenditures (PCE) Price Index and US jobs data later this week for more clues about the US interest rate path. If the reports show weaker than expected outcomes, this could drag the US Dollar (USD) lower and lift the USD-denominated commodity price.
Gold extends weekly decline as higher yields weigh on non-interest-bearing assets
Analysts at Deutsche Bank highlight that gold came under renewed pressure last week, with prices falling “-2.14% (+0.23% Friday), as higher real and nominal yields put downward pressure on precious metals as a non-interest-bearing asset.” The bank notes that while the modest rebound into the weekend partially offset the latest losses, the broader move underscores gold’s vulnerability in an environment of rising real and nominal yields.
Technical Analysis: Gold remains capped under the 100-day SMA
In the daily chart, XAU/USD keeps a bearish near-term tone as price holds beneath the 100-day simple moving average (SMA) and the Bollinger Bands’ middle line. The metal also trades below the latest Bollinger lower band, underscoring persistent downside pressure, while the Relative Strength Index (14) around 35 hovers just above oversold territory, hinting at stretched but still weak momentum.
On the topside, initial resistance emerges at the Bollinger lower band near $4,190, followed by the 100-day SMA at $4,300 and the Bollinger middle band at $4,335, where a recovery would start to ease the bearish pressure. A stronger rebound would face a subsequent barrier at the Bollinger upper band around $4,480, and only a sustained break above this area would suggest that XAU/USD is escaping its current downside bias.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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