Gold surrenders to surging US Dollar and elevated US bond yields
- Gold prices retrace, experience pullback from recent highs as US Dollar strengthens.
- Risk-off sentiment, lower Gold demand follows Fed announcement on monetary policy.
- Fed cautious on economy, eyes on inflation, labor market.
- US 10-year Treasury yields, Dollar Index rise, both headwinds for Gold prices.
Gold prices (XAU/USD) fell from all-time highs of $2,223 and broke below the $2,200 figure on Thursday, clocking losses of 0.29% as the Greenback stages a comeback while US Treasury yields paired yesterday’s losses. A risk-off impulse and the lack of demand for the yellow metal above the $2,200 mark sponsored XAU/USD’s leg down toward the $2,179 mark.
Financial markets continued to digest the Federal Reserve’s (Fed) dovish hold following its March 21 meeting. Fed Chairman Jerome Powell and his colleagues acknowledged that the economy is robust, the labor market is gradually cooling, and inflation remains high despite decreasing from higher levels last seen in the 1980s.
Fed officials reiterated that they expect three rate cuts in 2024, though policy would stay put unless data suggests the disinflation process is evolving. In the meantime, the US 10-year Treasury yield benchmark note has pared its losses, while the US Dollar Index (DXY) posted gains of 0.58% at 103.98.
Daily digest market movers: Gold price dips as US yields recover
- Jerome Powell emphasized the Fed had made progress on tempering inflation, and despite printing two straight months of higher prices, that hasn’t changed the Fed’s outlook in regard to price stability.
- Fed policymakers kept the Dot Plot unchanged for 2024. Still, the 2025 Dot Plot was revised up from 3.6% to 3.9%.
- For 2024, the Federal Open Market Committee (FOMC) forecasts that the economy will grow 2.1%, up from 1.4%, while the Unemployment Rate will remain at 4%.
- Inflation figures in the United States as measured by the Fed’s favorite gauge for inflation, the Personal Consumption Expenditures (PCE), weren’t changed. They were expected to be at 2.4%, while core PCE is projected to end at 2.6%, up from 2.4%.
- The US economic schedule revealed that Initial Jobless Claims for the week ending March 16 rose by 210K, below estimates of 215K and the prior week’s figures.
- S&P Global PMI figures for the United States were mixed with Services and Composite PMI readings cooling but remaining in expansionary territory. The S&P Global Manufacturing PMI was the outlier, exceeding estimates of 51.7 and the previous reading of 52.2 by jumping to 52.5.
- Existing Home Sales rose by 9.5% from 4 million to 4.38 million.
- According to the CME FedWatch Tool, expectations for a June rate cut stand at 74%, down from 59% at the beginning of the week.
Technical analysis: Gold traders' failure at $2,200 exposed the $2,180 mark
The XAU/USD price has fallen below the $2,200 mark and sits below the previous all-time high of $2,195 as sellers moved in. However, to further extend the yellow metal losses, they must drag prices toward the December 4 high, which turned support at $2,146, before challenging the $2,100 figure.
On the flip side, if buyers push prices toward $2,200, that will expose the current all-time high at $2,223 before aiming toward $2,250.
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.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
