Gold prices extended its bearish momentum into a second day this Monday, hovering within close vicinity of multi-week lows reached previously at 1310 levels.
The bullion quickly reversed a spike to 1323 highs post-Tokyo open and fell sharply to hit daily lows at 1313.46, as the Asian equities rallied to near nine-month tops, fuelling the demand for risky assets at the expense of safe-haven gold. Thereafter, the metal attempted recovery back towards 1320 region, in response to a subdued trading activity seen in the greenback against its major rivals. At the moment, gold now wavers around 1317 levels, down -0.40% on the day.
Today’s price-action in the yellow metal is mainly driven by rising US treasury yields and persistent risk-on market profile, as markets expect the Fed to turn out slightly less dovish/more hawkish at its Fed policy meeting commencing tomorrow. Moreover, markets also continue to speculate over a Sept Fed rate hike, given the recent series of upbeat US fundamentals.
The CME Fed Watch tool that tracks the Fed funds futures, on which traders bet to gauge the direction of US interest rates, showed 15% odds for a Fed rate increase by September from the current target range of 0.25%-0.50%, while probability for a Dec rate hike stands at 38.5%. The bullion tends to suffer in a high-interest environment as it is a non-interest bearing investment asset.
While the volatility index (CBOE VIX), which gauges the risk sentiment, rallies +5.50% to 12.70 levels, indicating that risk-on persists in full swing. This is well evidenced by higher treasury yields across all time horizons and rallying European equities. The 2-year treasury yields, which mimics the US interest rates expectations, rises +3.42% to trade around 0.730 levels.
All in all, markets believe that more downside remains in store for the bullion as investors’ confidence gets re-stored amid fading Brexit concerns, a less dovish Fed and upbeat US economic releases.
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